My Lords, fiscal responsibility should be the first duty of any Government in macroeconomic matters. The entire credibility of our economy is founded on that, as is our ability to engage with other partners in a global world. No one can object to the principle of fiscal responsibility. Indeed, even the current Prime Minister, on taking office as Chancellor of the Exchequer in 1997, promised us that he would,
“introduce tough rules for government borrowing … meeting the golden rule for borrowing. Over the economic cycle, the government will only borrow to finance public investment and not to fund public consumption … alongside this golden rule commitment, we will keep the ratio of government debt to GDP stable on average over the economic cycle and at a prudent and sensible level”.
Those were fine words, but I remain to be convinced that the Government have lived up to their own aspirations. We need to recognise that we as a country face a major problem of credibility, and that we will achieve credibility only by adopting a serious approach and by taking difficult decisions. Anyone who takes the complex decisions that will need to be taken in the highly charged global economic environment of the coming months will need to make fiscal responsibility a top priority.
Our current fiscal situation is truly dire, and we should all be very worried about the problems. Government borrowing over the next five years is projected to exceed the entire debt inherited from all previous Governments put together, and our national debt is set to double to more than £1.5 trillion. Debt as a proportion of gross domestic product is estimated to be around 43 per cent, but some project that this might increase to 80 per cent by 2013. Our credibility is at stake and we need to act.
However, I am not sure that the way out of this crisis is for Parliament to enact legislation that requires the Government to do what they should be doing anyway. The Prime Minister’s ambition to halve the deficit within four years, as he announced at his party’s conference last year, will still leave it at 7 per cent-the same ratio as when this country went to the International Monetary Fund in 1976. Even in those circumstances, we need to recognise that our markets are not going to be as attractive as they could be, which should alarm all of us who are interested in the well-being of our economy.
It is disturbing that our international credit rating could be put in jeopardy through the fiscal expansionism over which this Government have presided over the past 12 years. The consequence of that change in our credit-rating status may result in an increase in interest rates, which could only inflict further harm to our economy and prolong the suffering that we as a nation endure on the road to recovery from the recent recession.
I return to my original point; most economic actors and political commentators recognise the crisis that we face, but can another piece of legislation truly be the answer? The problems are more fundamental, and it is not clear what this legislation will deliver in practice beyond grand aspirations and worthy ambitions. What will this legislation enshrine that would prevent any Government breaking the rules, even after the legislation is passed? We need to have a clear and coherent answer, otherwise we risk the charge that this Bill does nothing but articulate fine aspirations.
To be fair to the Government, a recognised problem lies in the definition of the timings of the economic cycle in applying the golden rules. It does not help that the Government have changed the definition of the economic cycle on several occasions to suit the communications agenda and political conveniences of the day.
These changes have damaged our credibility internationally, as the Institute for Fiscal Studies has observed. It said:
“The perception that the Chancellor has moved the goal posts and has delayed the tax raising measures and cuts in spending plans that we and other independent commentators had been saying would be necessary until after the 2005 election undermines the credibility of the fiscal framework”.
If this Bill can seek to restore that credibility, that can only be a positive step forward, but I am concerned that it will do little more than create yet another government target. In view of the country’s present financial situation, parliamentary time could be used more productively by putting together a credible plan to reduce the increasing deficit and restoring our credibility in international markets. I hope that I am wrong, but I do not believe that the Bill will make a tangible difference to that course.
I do not underestimate the scale of the task that will face whoever happens to sit on the government Front Bench after the general election, but I commend the approach that my party has agreed to adopt. The economic model that has sustained the Government’s fiscal expansion is damaged, having been constructed on the basis of a public spending boom, a confused regulatory mix in the financial services sector and excessive consumer borrowing that fed a housing-price bubble. We need to undertake a fresh analysis of where future economic growth will come from, and construct a firmer foundation for future economic stability.
I welcome the comments from my Front Bench over recent weeks that have painted an ever clearer picture of how we would build economic growth on a competitive tax system and new infrastructure. We should look to the growing economies of the east not to supply goods and services for our consumption and use, but to be partners in competition that will want to purchase what this country can offer and provide. We in this country have a great deal to offer the world economy, and restoring our position should be our prime focus.
The eight benchmarks on which the Conservative Party’s policies can be judged are measured and sensible. We must act with urgency to protect our credit rating, without which we will face an even bigger task to recover from the unfavourable situation in which we find ourselves. We need a more balanced economy, which will involve increasing the role of the private sector in every region of the United Kingdom. We need to think seriously about wealth creation and not just about government intervention. The proposed reforms of the banking system have already attracted much attention and will deliver added strength to our economic growth. The banking system must serve the needs of the economy. We should all be concerned at the high level of youth unemployment. I am glad that my party takes this problem seriously and includes it in the eight key criteria on which economic policy can be judged. Tax competitiveness should also be a factor, as we need to ensure that we attract global wealth creation to our shores. We should not be afraid of creating a comparative advantage over our competitors, as we need to create an economic climate that thrives and creates wealth through dynamism and innovation.
We cannot expect to tackle the fiscal crisis without adequate reform of our public services, which will need to demonstrate value for money. In recognising the contribution that innovation can provide in supporting the green economy, we can exploit the advantages that will emerge in the international market. These are the eight critical steps that will restore the credibility that is so lacking in our current economic system. I do not feel that this Bill, on its own, will improve the situation regarding our credibility.
In conclusion, I am pleased that the Government appear to recognise the need for action in restoring fiscal responsibility to the top of our economic management; but a real programme of action to reduce the deficit and to make people want to invest here will do far more than another piece of legislation enshrining yet another target. Actions will count more than words, and it is time to stop talking and to start acting. If this Bill makes a positive contribution to that, it will be worth while, but I am not without doubts.