Section 5 of the European Communities (Amendment) Act 1993

During the annual debate on the pre-budget report and the information provided by the Government to the European Commission, David Gauke moves an amendment criticising the lack of a credible plan to deal with the UK's deficit.

Mr. David Gauke (South-West Hertfordshire) (Con): I beg to move amendment (a), at end add:

As the Minister said, the report that we are debating is published in accordance with our obligations under the European Communities (Amendment) Act 1993 to inform the European Commission of our economic and budgetary position. I want to begin by making a point that appears to be traditional at the commencement of these debates-that the Government have been reluctant to publish the report and make it available to hon. Members.

The report should have been published before the end of December, but in fact was published only on 28 January. However, it is written as though it had been published last year, referring as it does to the VAT reduction that "will" expire on 31 December 2009. I hope that the Minister will explain why there was a delay, and why that detail was not picked up.

It was also very difficult to locate the report. I obtained a copy last week, but it was not available in the Vote Office yesterday. This is a point that has been made many times before: my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) made it in the equivalent debate last year, and I did so the year before. It may not be entirely surprising that the Government do not want to make the report widely available, given the state of the public finances, but it is a pity and I hope that the problem will be rectified in future,

Before I turn to the contents of the Treasury's report and the state of the UK's finances, I want to touch briefly on the issue of Greece, which was raised by my hon. Friend the Member for Stone (Mr. Cash) earlier this afternoon. It was also raised by my hon. Friend the Member for Harwich (Mr. Carswell) and the hon. Member for Birmingham, Edgbaston (Ms Stuart) in the course of Prime Minister's questions.

This report is part of the multilateral surveillance procedure under articles 121 and 126 of the European Union treaty. One suspects that multilateral surveillance is somewhat to the fore in the Treasury's mind at the moment.

The Government will be aware of the widespread speculation about the fiscal situation of some members of the eurozone, and of Greece in particular. Will the Minister tell the House what the Government's opinion is about providing external assistance for Greece, if that becomes necessary? Does he consider that to be a matter for eurozone countries alone, or is it an international matter for members of the IMF and the G20? Does he think that there is any role for the EU as a whole, including non-eurozone members? If UK taxpayers are to be involved in any way in bailing out another country, will he give an undertaking that this House will be kept informed?

Mr. Cash: I am sure that my hon. Friend is aware that a brand new Commission for the whole of the EU has been established today. Does he have any information about whether the requirements under the section of the Act that we are debating have been referred to the previous Commission, or the present one?

Mr. Gauke: My hon. Friend makes an interesting point. I am not in a position to answer him, but perhaps the Minister will have an opportunity to do so later.

I turn now to the British situation, as set out in the report. We are in a very difficult position as a country. In its recent "Green Budget" document, the Institute for Fiscal Studies said:

The UK has suffered the largest fall in activity, relative to its pre-crisis trend, of any G7 economy. It is the slowest of the G20 economies to emerge from recession, and it is borrowing more than at any time in our peacetime history. We are borrowing more than any major economy. Our credit rating is under threat. In those circumstances, the credibility of the plans to get us out of this mess is crucial.

It is worth examining the comments made by those who have held positions of responsibility during the Government's term of office and their views on the credibility of the Government's position. Howard Davies, the former head of the Financial Services Authority, stated:

Sir John Gieve, appointed as deputy governor of the Bank of England, stated that the Government's plan

Richard Lambert, a former member of the Monetary Policy Committee, now director general of the CBI, stated:

On the fiscal plan set out in the pre-Budget report, Mervyn King, the Governor of the Bank of England, told the Treasury Committee that

a downgrade to the credit rating

I think it would be fair to interpret those remarks as suggesting that no credible plan was in place. To confirm that impression, on 19 January the Governor of the Bank of England stated in a speech in Exeter that the spring Budget provides an opportunity to

again suggesting that that commitment had not previously been demonstrated.

Sir Steve Robson, former second permanent secretary to the Treasury under the present Prime Minister when he was Chancellor of the Exchequer, said of the pre-Budget report:

Sir Steve Robson went on to state:

We have heard warnings about the credit rating agencies from the likes of the Governor of the Bank of England and former senior civil servants. Today Brian Coulton, head of sovereign rating at Fitch, stated:

Fitch has previously warned of the need for an aggressive programme of fiscal tightening after the election.

Standard and Poor's has already downgraded the outlook for Britain's credit rating from "stable" to "negative". I could list a number of economists, all of whom express their concern about the credibility of the UK's fiscal position. Bill Gross, managing director of the leading bond investor Pimco rather alarmingly stated:

If our credibility is at risk, as it clearly is, we will have to pay more for our debt, and interest rates will rise unless something is done to address the issue.

My hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, has stated that the first benchmark on which we, the Conservatives, would ask to be judged if we are in power in the next Parliament, is maintaining our triple A credit rating. Is the Minister prepared to be judged on that criterion as well? Perhaps he will tell us in his remarks later.

With all the resources at their disposal, the Government have obfuscated on setting out any spending details. There is no comprehensive spending review. It has been kicked into the long grass. The Institute for Fiscal Studies estimates cuts of up to 24 per cent. in some Departments, but the Government refuse to give us any numbers. The Minister is partially exempt from some of these criticisms. He said today that some of the cuts will be pretty painful. He has previously said that they would be extremely painful.

The Government have done everything they could to prevent the numbers being available. In the report that some of us have before us, we see a further example of that. Last year, in the equivalent report, Government interest paid as a percentage of GDP was set out for all the years up to 2013-14. This year-I thank my noble Friend Baroness Noakes for highlighting this-one would expect interest percentage to be provided for an additional year. Instead we have the figures only up till 2010-11. When the point was raised in the equivalent debate in the other place last week, Lord Myners responded that

that is, annual managed expenditure-

Why there is more volatility and uncertainty this year than last year is not entirely clear.

The Treasury Committee, a Labour-dominated Committee, said:

Such a lack of openness and candour does nothing for the credibility of the Government or for the public finances of this country.

The Government's case, as we heard today, is essentially that unemployment is not as high as expected and that repossessions are not as high as expected. It is worth highlighting the remarks of the Association of Business Recovery Professionals, which stated that after the last recession in the early 1990s, the peak of corporate liquidations occurred five quarters after the return of growth, and the peak of personal insolvencies was 18 months after the return of growth. In the recession in the early 1980s, the lag was even greater, so let us hope that we are not going to see a high number of insolvencies and liquidations, but the historic precedents suggest that the worst is still to come.

Alistair Burt (North-East Bedfordshire) (Con): Does my hon. Friend not think it is the most curious defence from a Labour Government facing the figures of unemployment and bankruptcies that we have, simply to say, "Oh well, it's not as bad as it might be. The bruising might be tough, but it could have been so much worse"? There has been a 118 per cent. increase in unemployment in my constituency since 1997, the 15th worst in the United Kingdom. My constituents do not take kindly to being told, "We've handled your affairs badly, but it could have been so much worse."

Mr. Gauke: I am grateful to my hon. Friend for that excellent intervention. We should remember that all Labour Governments leave unemployment higher than they inherited, and they therefore judge themselves by those standards. Even by those standards, the situation is pretty appalling. There was a moment of consensus about the importance of a flexible labour market. The hon. Member for Taunton (Mr. Browne) was right. The reason why unemployment has not gone up as much as it might have done is that more people are working part-time, which partly compensates for the smaller number of people working full-time. The number of people in full-time employment has gone down by about 600,000; the number of people in part-time work has gone up by 280,000. That is welcome flexibility. I am glad that the Minister welcomed it, but I am not sure that the trade unions that fund the Labour party do.

On the long-term trend, the Institute for Fiscal Studies' "Green Budget" made the point that

Interestingly, the IFS went on to state:

the non-accelerating wage rate of unemployment-

Let us look at the growth projections on which the Government rely for their public finance projections. Generally, the IFS says that the UK is poorly placed; specifically, the "Green Budget" states:

The IFS has a central estimate of a 7.5 per cent. fall in productive capacity. It goes on to state:

That has a significant knock-on effect on the credibility of the public finance projections.

In support of the IFS view, which is broadly consistent with that of the OECD, we have the McKinsey report "Debt and Deleveraging: the global credit bubble and its economic consequences". It states that slow economic growth is the inevitable consequence of high relative indebtedness, and in that context it is interesting to examine McKinsey's calculations. It added up the debts of households, companies and Government and financial institutions and compared them with GDP. It found that the UK debt ratio was 466 per cent. That is slightly lower than Japan's 471 per cent., but they are far and away the two biggest ratios among the major economies. Even if one strips out the banks, and to be fair there is an argument for doing so, one is left with the UK as the second most indebted major economy.

On projections, the IFS is more optimistic than the Government about the borrowing number for 2009-10. It thinks that £178 billion may be overly pessimistic, but that is the end of the good news. It anticipates weaker growth than the Treasury in tax revenues for a given economic outlook, and it sets out Barclays bank's growth forecasts. Even under Barclays' central scenario, the fiscal forecast suggests that borrowing will persist at a higher level than the Treasury forecast.

Given the crisis in the public finances, what do we have from the Government? Their fiscal consolidation has been deferred until long after the general election, and there are no specific details about departmental spending. In fact, the Government have been downright evasive. There is no consistent willingness to level with the British people about what will be necessary; and, as for institutional change in order to enhance the UK's credibility, rather than create the widely welcomed office for budget responsibility, they have introduced the universally derided Fiscal Responsibility Bill.

The Opposition are optimists: we believe that this country can do better and can address the long-term challenges. But the fact is that we must be realistic about our situation. The Prime Minister promised an end to boom and bust; he has given us the worst bust since the depression. He said that Britain was best placed to withstand the recession; he has given us the worst recession of any country in the G7 and the longest of any in the G20. The Government promised us sustainable public finances; we have the worst budget deficit in our history, and our credit rating is under threat.

We have a boom built on debt-a burden that will hold back growth and drive up unemployment if we do not do something about it. The Government will not accept their responsibility for the disastrous state of the public finances, and they are not fit to accept responsibility for our public finances after the general election. The pre-Budget report reveals a Government who have a legacy of failure and no plan for the future. This country can afford this Government no longer. It is time for a change.

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