Economic Policy

Monday 25th February 2013 Commons Chamber

15:33

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the UK Government’s economic policy following the loss of Britain’s triple A credit rating.

[The Chancellor of the Exchequer (Mr George Osborne)]

This rating decision is a stark reminder of the debt problems built up in Britain over the last decade, and a warning to anyone who thinks we can run away from dealing with those problems. We on the Government side of the House will not do that.

I can report that we have not seen excessive volatility in the markets today. Ten-year Government gilts are broadly flat—trading at 2.1%—within the trading range of the last week, and near the very lowest rates of borrowing in our history. The FTSE 100 is currently up.

The credit rating is an important benchmark for any country, but this Government’s economic policy is tested day in, day out in the markets, and it has not been found wanting today. Families and businesses see the benefit of that in these very low interest rates.

If we accept the outcome of the rating agency’s decision, we must accept the reasons given for that decision. Moody’s points to the combined impact of what it describes as

“slow growth of the global economy”

and the necessary

“domestic public- and private-sector deleveraging process”—

in other words, the process of winding down the huge debts that built up in our society over the last decade. That is the environment that we are operating in. We are dealing with the very high deficit and debt trajectory that this country had, coming out of the financial crisis, and that was made more difficult by the economic environment abroad.

On the same day as the rating decision, the latest European forecasts showed the eurozone deep in recession, and weaker growth than ours in key economies such as France and Germany. Crucially, Moody’s says that the UK’s creditworthiness remains extremely high because of our

“highly competitive, well-diversified economy”

and a

“strong track record of fiscal consolidation”—

what it calls the “political will” to “reverse the…debt trajectory.” Its message to this Government and this Parliament is explicit: the UK’s rating could be downgraded further if there is a

“reduced political commitment to fiscal consolidation.”

Hon. Members will not get that reduced commitment from this Government. We will go on delivering on the economic plan that has brought the deficit down by a quarter, that has helped to secure 1 million private sector jobs, and that continues to secure very low interest rates, not just for the Government, but for families and businesses in this country.

Ultimately, that is the choice for Britain. We can either abandon our efforts to deal with our debt problems, and make a difficult situation very much worse, or we can redouble our efforts to overcome our debts, make sure that this country can earn its way in the world, and provide for our children a very much brighter economic situation than the one we inherited from our predecessors. That is what I will do, and what this Government will do.

[Ed Balls]

The downgrading of Britain’s credit rating is, in the Chancellor’s own words, a “humiliation” for this Government. Let me remind the House what he promised at the general election. He said:

“the British people will have eight clear and transparent benchmarks against which they can judge the economic success or failure of the next government”.

Point 1 says:

“We will safeguard Britain’s credit rating”.

The first economic test he set himself has been failed by this downgraded Chancellor. Yet as we have seen today, he remains in complete denial, offering more of the same failing medicine, even though Moody’s now agrees that “sluggish” growth is the main problem. Does he not now regret using the rating agencies as cover for his accelerated tax rises and spending cuts—an economic course he was warned was bound to fail?

The plan has failed. Businesses, families and pensioners are struggling. Our economy has flatlined, and as a result, Government borrowing is set to be £212 billion higher than the Chancellor planned, but despite all that, he spent the last year saying, “I must stick to my plan to keep the triple A rating.” Now that it is clear that his warnings of disaster—of rising mortgage rates and market mayhem—if we downgraded have not come true, what other excuse does he have for sticking to the plan? Over a weekend, he went from saying that he must stick to his plan to avoid a downgrade to saying that the downgrade is the reason why he must stick to the plan. He used to say that a downgrade would be a disaster; today he says it does not matter, but he still warns that a downgrade in future might be a problem—until it comes along; then he will have the same excuses. It is utterly baffling and completely illogical. He is just making it up as he goes along.

No wonder the Chancellor is now besieged by calls from right, left and centre to kick-start the recovery with infrastructure investment and tax cuts. Even the economic adviser to his great political rival, the Mayor of London, has today called for

“more spending by the Government on infrastructure and construction.”

In conclusion, the Chancellor needs to get out of his denial and get a new plan on growth, jobs and the deficit that will work, or else the Prime Minister will need to get a new Chancellor. Does the Chancellor not see that it is his first duty not to put his own political pride first, but to put the national economic interest and families and businesses in this country first?

[Mr Osborne]

The shadow Chancellor finds himself in the contradictory position of seeking an urgent question on a rating decision which he says we should ignore, about a debt burden that he admits he would add to, in order to attack a Government who are sorting out the mess that he created. What exactly is his policy? Six times on the radio he was asked this weekend whether the answer to too much borrowing is to borrow even more, and he would not answer the question. It is an economic policy that dare not speak its name, from a shadow Chancellor who refuses to be straight with the British people. Finally, he was confronted on the radio by the simple statement:

“I, Ed Balls…would borrow more”

and he admitted,

“Yes, that is what I would do.”

Does not that admission completely undermine his entire argument today? A deliberate decision to borrow more—[Interruption.]

[Mr Speaker]

Order. Government Back Benchers, whatever their intentions, are in danger of shouting down their own Chancellor. Mrs Perry, calm yourself. There is always another day.

[Mr Osborne]

Government Back Benchers are as baffled as I am by the shadow Chancellor’s economic policy, which he has just had a few minutes to explain and still there is no explanation. His answer to a debt crisis is to borrow more. His answer to too much borrowing is to add to it. That is the problem he has, ultimately—that he is responsible for the mistakes that got Britain into this economic mess. This is the verdict from the leading Citi economist, Michael Saunders, today:

“In our view, the underlying causes of the UK economy’s weakness—and hence the rating downgrade—stem from the surge in private credit and public spending during 2000-2007.”

Who was in charge of economic policy during that period? The right hon. Gentleman is the architect of the mistakes that gave Britain its debt problem. He ignores the solution to that debt problem. He is condemned to repeat those mistakes and, as a result, his party is condemned never to be trusted with the public finances again.

[Mr Andrew Tyrie (Chichester) (Con)]

The truth is that any Government would need a credible deficit reduction plan, and the plain fact is that the markets are telling us we have one. Does the Chancellor agree with the shadow Chancellor, though, as he pointed out only the day before yesterday, that what the rating agencies have to tell us, given their dismal forecasting record, is of very limited value?

[Mr Osborne]

I would say that the credit rating agencies are important, but they are one test—[Interruption.] It is the shadow Chancellor who wants to say that the rating agency’s decision is not important, but we should still have a debate on it in Parliament. It is a completely contradictory position. It is important, but it is just one test of the Government’s economic credibility in the markets, and that is tested by the gilt yields, by the value of sterling, by the rates of the stock market and all sorts of other things, and as I say, today we have not seen excessive volatility. I say to the shadow Chancellor and to my hon. Friend and the Treasury Committee that we have to convince the world that we can pay our way in the world, and that is what this Government are going to do.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

If the Chancellor did not want this to be the test, he should not have set it up to be the test. Does he agree with himself that for the UK to lose its triple A rating would be a humiliation?

[Mr Osborne]

What would be humiliating is if this country lost control of its economic destiny. The way we keep control of our economic destiny is deal with our debt, deal with the imbalances in our economy, and make sure that this country can pay its way in the world, and that is what this Government are doing.

[Gordon Birtwistle (Burnley) (LD)]

Does my right hon. Friend agree that the shadow Chancellor would himself get a triple A rating for his skill in running this country down? Does he also agree that the hard-working people of this country are getting—[Interruption.]

[Mr Speaker]

Order. The hon. Member for Burnley (Mr Birtwistle) should resume his seat. I must say to Members that I am trying to ascertain whether the question is in order; it might or might not be, but it is very difficult to hear. I can make a judgment only if I can hear it, and that means Members need to stop shrieking. Let us hear the hon. Member for Burnley and see whether he is in order.

[Gordon Birtwistle]

Thank you, Mr Speaker. I am sure that you will find that it is totally in order. Does my right hon. Friend agree with the rest of the people that they are getting sick and tired of the shadow Chancellor’s politically motivated antics?

[Mr Speaker]

I am bound to tell the hon. Member for Burnley that I am always very grateful to him for his advice, but I think that on the whole I can probably get by without it, and only by a very generous interpretation—I am in a generous mood—could that be considered to be in order, but I will happily have the Chancellor briefly respond.

[Mr Osborne]

My hon. Friend is right that what is completely extraordinary is that we have constant criticism from the shadow Chancellor of our fiscal policy but not a clue from him about what he would do except add to borrowing. He has made it very clear that he would add to borrowing, although he has not said by how much, and he has not said which of the cuts he would stick with and which he would oppose, so until we have a credible alternative, we will not have a credible shadow Chancellor.

[Frank Dobson (Holborn and St Pancras) (Lab)]

The Chancellor, having abandoned the triple A rating as a benchmark, appears to have adopted the claim that he has created 1 million private sector jobs. Will he tell us how many of those jobs have in fact been transferred to the private sector, or franchised out to it, from the public sector?

[Mr Osborne]

Private sector employment is up by 1 million since the election, the unemployment rate is lower than when we came into office, female employment is at the highest level in our history and the inactivity rate is at its lowest since 1991, so even though there has been a necessary reduction in public sector jobs, which I think even the Opposition accept had to happen—at least, they used to—we have actually seen very healthy jobs growth in the economy.

[Mr John Redwood (Wokingham) (Con)]

Does the Chancellor agree that the state balance sheet would look an awful lot better, and that the economy would function better, if RBS was sorted out more quickly and sold back to the private sector in a way that promoted banking competition?

[Mr Osborne]

I agree with my right hon. Friend. RBS is now pursuing a policy of becoming a much more UK-focused bank than it was under the strategy we inherited. We are absolutely clear that it should not be in the universal banking business on the scale that it has been and that the investment bank should be supporting its corporate and retail business in the UK, and it has made important steps in that direction.

[Gavin Shuker (Luton South) (Lab/Co-op)]

Will the Chancellor confirm that in the five years of this Tory-led Government he will borrow more than the previous Labour Government borrowed in 13 years?

[Mr Osborne]

Let me explain something to the hon. Gentleman. We inherited a 12% budget deficit, and the deficit is defined as the amount added to the debt every year. We are getting the deficit down in order to deal with the debt problem. His plan is to increase the deficit deliberately, borrow even more, add to the debt burden and repeat all the mistakes made by his colleagues when they were in charge.

[Richard Fuller (Bedford) (Con)]

Between the mid 1990s and 2010, the nation’s total indebtedness grew from two to five times the national income. The shadow chancellor and the Leader of the Opposition, who came to Bedford two weeks ago to advise that the country should borrow £200 billion more, were architects and supporters of a policy of indebting our children and grandchildren. Will my right hon. Friend tell me what the implications for the country’s credit rating would be if the Opposition’s policies were pursued today?

[Mr Osborne]

We are debating the decision of Moody’s credit rating agency, which said in its market notice on Friday that reduced political commitment to fiscal consolidation could lead to further downgrades of the United Kingdom. That is the verdict of the ratings agency. The verdict of the Institute for Fiscal Studies, an independent body, is that Labour plans would add about £200 billion extra to borrowing. That is the view of independent bodies about the Labour party’s economic policy.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Is the Chancellor aware that the whole country is getting progressively more sick of the mantra that there is no alternative, which he parades as a policy, and that for as long as he perseveres with these counter-productive policies there is no hope? In particular, until he can get his national programme for investment in infrastructure under way—even the director general of the CBI said that he had totally failed to deliver on that, and the whole country and the whole House agrees—he is failing as a Chancellor.

[Mr Osborne]

Infrastructure spending—actual money being spent on infrastructure—is higher in this Parliament than it was in the previous Parliament. That is, I am afraid, the simple fact produced and audited by the independent Office for Budget Responsibility. We have increased capital spending compared with the plans that we inherited, and under this Government in this Parliament it is higher as a percentage of GDP than under the previous Labour Government. That is what has happened.

[Mark Garnier (Wyre Forest) (Con)]

Does my right hon. Friend agree that it is going to take slightly longer than two and a half years to sort out a problem that was 13 years in the making?

[Mr Osborne]

My hon. Friend puts it very simply. It is a bit like the arsonist calling the fire brigade and then complaining that we have not put the fire out quickly enough.

[Mr Dennis Skinner (Bolsover) (Lab)]

Does not the Chancellor realise that it has been three years of continuous failure: first, a recession, then a double-dip recession, and now the relegation of the pound sterling? If he had been a football manager he would have been out on his neck already. The people think that he is not fit to deliver the next Budget—why does he not get out?

[Mr Osborne]

There seems to be amnesia about Labour’s 13 years in office. The hon. Gentleman talks about a double-dip recession. The first recession was a 6% contraction in our economic activity while he was supporting a Labour Government, with a 12% budget deficit, a higher rate of unemployment and more youth unemployment than we have today. We are sorting out these problems. Of course it takes time, but, frankly, the prescription of the hon. Gentleman and other Labour Members would put us right back in the mess that they left this Government with.

[Mr Brooks Newmark (Braintree) (Con)]

Does the Chancellor agree that the only two countries that have maintained their triple A credit rating across the board—Canada and Germany—are the two countries that fixed the roof while the sun was shining?

[Mr Osborne]

My hon. Friend is absolutely right. Germany and Canada went into the financial crisis with the two lowest structural deficits of the G7, and the United Kingdom went into the financial crisis with the highest structural deficit in the G7—5%. That was confirmed recently by the International Monetary Fund. I think that, quite extraordinarily, the only person in Britain who still denies that we had a structural deficit is the shadow Chancellor. The former Chancellor accepts it and the former Prime Minister, Tony Blair, accepts it; only the shadow Chancellor does not accept it. He cannot accept it because that would mean admitting he got it wrong, and if he admitted he got it wrong, people would not put him in charge again.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

It is suggested that to establish economic credibility we need more growth in the economy, yet—since the Chancellor seems to be quoting former Chancellors—a former Conservative Chancellor said that it will be years before we re-establish proper growth in the economy. How is the Chancellor going to re-establish his credibility?

[Mr Osborne]

As I said, the credibility of the Government’s economic policy is tested every day in the markets, and we are borrowing at record low interest rates. As I have said many times, the idea that the problems we inherited could be solved overnight was patently ludicrous. They are some of the worst economic problems that any incoming Government have ever faced in British political history. We are dealing with those problems. The deficit is down by a quarter, 1 million jobs have been created in the private sector, and interest rates remain very low. That is the test of the success of our policy.

[Claire Perry (Devizes) (Con)]

I shall be calm, Mr Speaker. Will the Chancellor confirm that two other major rating agencies still maintain Britain’s triple A credit rating and that the credit default swap rate—another measure of default risk—is at 51 basis points today, one of the lowest levels in the world?

[Mr Osborne]

My hon. Friend is right about the credit default swap rate. As I have said, the credibility of our policies is tested every week when we have to borrow all this money to pay for Labour’s deficit, and we are borrowing it at record low rates.

[John Mann (Bassetlaw) (Lab)]

Would not the honourable course be for the Chancellor to say at the next Cabinet meeting, “I’m going outside and I may be some time”?

[Mr Osborne]

The problem with the hon. Gentleman is that he is pretty free with his calls for people to go. The last person he called on to go was the shadow Chancellor.

[Sir Tony Baldry (Banbury) (Con)]

Is it not correct that even before the crisis struck we had pretty much the biggest structural deficit in the world as a consequence of the previous Government’s policies? It is no wonder that we have been losing ground to economies such as those of India and China. It is only if we stick to our guns that we will sort out our position to become increasingly internationally competitive with other economies.

[Mr Osborne]

My hon. Friend is right. The UK had the highest structural deficit of the G7 going into the financial crisis. That was confirmed by the IMF just before Christmas. He is also right about our trade patterns. When this Government came to office we were exporting more to Ireland than to the BRIC countries—Brazil, Russia, India and China—combined. We are seeking to expand our trade with those countries and it has been going up markedly. I think there has been an almost 100% increase in our trade with China and, of course, the Prime Minister led a high-powered business delegation to India only last week.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

Will the Chancellor remind the House and the country how many billions of pounds his Government have borrowed since he came to office?

[Mr Osborne]

We borrow money because we are running a deficit and we are trying to get it down from the 11.5% that we inherited. The deficit has actually come down by a quarter over the past couple of years.

[Mr John Baron (Basildon and Billericay) (Con)]

Evidence suggests that this downgrade will have little effect in the actual markets. May I also suggest to the Chancellor that small business corporation tax cuts will bring their own reward over the medium term? [Interruption.]

[Mr Osborne]

I think that someone on the Opposition Benches shouted from a sedentary position, “Tax cuts for the rich,” when my hon. Friend was suggesting tax cuts for small businesses. That tells us everything about the Labour party’s attitude to enterprise. We have reduced the small companies rate, which was due to go up to 22% under the plans we inherited. It is now 20% and, as from the beginning of this year, we have had a tenfold increase in the annual investment allowance to help small businesses.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Who does the Chancellor think has been the most humiliated in the eyes of the public—the credit rating agencies that gave triple A ratings to junk investments and therefore helped cause the financial crisis, or the Chancellor, who staked everything on the same triple A rating and then lost it?

[Mr Osborne]

Unfortunately the hon. Lady’s list did not include the shadow Chancellor, so I cannot give her an answer.

[Mr Peter Bone (Wellingborough) (Con)]

I can guarantee that in the Dog and Duck in Wellingborough they will not be talking about Moody’s. They might be talking about the lowest council tax in the country or the thousands of homes to be built in Wellingborough East, but does the Chancellor agree that they are most likely to be discussing the 2,000 new jobs that will be created by the Skew Bridge development, which will bring leisure and retail facilities to my town?

[Mr Osborne]

I think they will be talking about the new jobs being created at Skew Bridge and those being created across our economy as the private sector grows. I was in the west midlands on Friday, where I think there has been a 67,000 increase in jobs in the private sector over the past year. That is worth remembering, because the number of jobs in the private sector in the west midlands during the boom years before the financial crisis actually shrank under the previous Labour Government.

[Helen Goodman (Bishop Auckland) (Lab)]

The Chancellor began by saying that the gilts market had been flat today, but in fact it is down across the board. Will he share with the House his changed forecast for inflation following the fall in the pound and for the cost of borrowing to the Government?

[Mr Osborne]

Unless something happened while the shadow Chancellor was on his feet, the gilts market was flat on the day.

[Penny Mordaunt (Portsmouth North) (Con)]

The shadow Chancellor has admitted that his plan is to borrow even more. Although the Chancellor has a tough shift sorting out the disaster of Labour’s economic legacy, is he not glad that it is our shift when he stares at the car crash of an alternative opposite him?

[Mr Osborne]

We have inherited a very tough economic situation from our predecessors, but we have confronted the problem and taken difficult decisions on spending. What is remarkable about the Labour party is that in all its questions at Treasury questions, Prime Minister’s questions and the like, it complains about every cut, but never tells us about a single cut that it supports. That is why it does not have a credible shadow Chancellor or a credible economic policy.

[Lucy Powell (Manchester Central) (Lab/Co-op)]

In 2011, the Conservative party issued a dossier that said that a credit rating downgrade

“could add £5,000 per year to a family’s mortgage interest bill”.

Does the Chancellor stand by that laughable remark?

[Mr Osborne]

We are very clear that if we lost control of the country’s credibility in the international markets, as Labour would, interest rates would go up and families would pay more. The truth is that because of the credibility of our economic policy, interest rates are low and have stayed low today.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I wonder whether I may remind the Chancellor that Standard & Poor’s is facing proceedings from the United States Government for fraud and that Moody’s is likely to follow? Moody’s has just downgraded a country whose debt is all denominated in its own currency, which is a fiat currency. That is absolutely nonsensical. Will he therefore join me in citing Lord Chesterfield and telling them that they are foolish people who do not even know their own foolish business?

[Mr Osborne]

I think that it was Lord Chesterfield who provided advice to his son in that famous book, and I am sure that the advice included, “Don’t spend more than you’ve got.”

[Mr Tom Harris (Glasgow South) (Lab)]

The Chancellor seems determined to follow in the footsteps of his illustrious predecessor, Lord Lamont, who, following our ignominious expulsion from the exchange rate mechanism in 1992, famously had a bath and sang, “Je ne regrette rien”. Does the Chancellor have any plans to have a bath tonight and what song does he plan to sing? May I suggest, “Help!”?

[Mr Osborne]

We are dealing with the problems that we inherited. Given the situation that we inherited, I think we can say, “Things can only get better”.

[Jake Berry (Rossendale and Darwen) (Con)]

At the export for growth summit in east Lancashire, I spoke to world-class engineering businesses that are interested in borrowing to invest in their businesses so that they can grow and sell to the global market. Will the Chancellor confirm that he will stick to his plan and keep interest rates at a record low so that we can create more jobs in east Lancashire?

[Mr Osborne]

My hon. Friend is a powerful champion of businesses in his constituency and has spoken to me about what they need. He is absolutely right. Of course we want to get credit to businesses that want to expand and take people on. That is why we run the funding for lending scheme with the Bank of England. We have also provided additional annual investment allowances in the way that I have just set out. The reaction of business organisations to the news of the last couple of days has been striking: they have absolutely supported the Government’s determination to deal with our debts.

[Geraint Davies (Swansea West) (Lab/Co-op)]

May I congratulate Swansea City on its triple A rating after winning the league cup? At the same time, the Chancellor is fouling up the economy and has caused a penalty that has lost us the triple A rating. He should be focusing on a growth strategy and should not be cutting the poorest hardest, given that they spend the most.

[Mr Osborne]

Of course, I congratulate Swansea on its victory in the Capital One cup.

We have to take difficult decisions on things like welfare, but we are helping people to have incentives to be in work, helping people who are in work and supporting people by, for example, increasing the personal allowance and taking the lowest-paid out of tax altogether. I would hope that the hon. Gentleman supports that.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

The Chancellor has rightly drawn attention to the effect of deleveraging. May I remind him that the average leverage ratio for the banks in the 40 years between 1960 and 2000 was 20 times, and that between 2000 and 2007 it rose to 50 times? Will he remind us which party was in government at that time and who was the Minister for the City?

[Mr Osborne]

We are now looking, through the Basel agreement, at a leverage ratio as a back-stop to regulation in this country, and of course we have the Financial Services (Banking Reform) Bill coming through Parliament better to protect and regulate our financial services. My hon. Friend is quite right to remind us of who was the City Minister when the City blew up.

[Lilian Greenwood (Nottingham South) (Lab)]

In February 2010, the Chancellor asked:

“What investor is going to come to the UK when they fear a downgrade of our credit rating?”

What I and my constituents want to know is this: does he still think that a downgrade will drive investors away, and if not, what has changed?

[Mr Osborne]

I am very clear, and was clear then, that the test of the Government’s economic credibility is out there in the markets with the interest rates that we can charge and in the corporate tax environment and the general competitiveness of the economy that we offer. Since I made those statements, this country has actually become more competitive and climbed up the league tables of international competitiveness. There was a survey last week on business tax, which said that this country had gone from being one of the least competitive business tax regimes in the world to being one of the most competitive.

[Mr Julian Brazier (Canterbury) (Con)]

Will my right hon. Friend reassure the House that he has no plans to balkanise the responsibility for regulating banks, that he will not sell off half our gold at a knock-down price and that he is not going to let our deficit rip?

[Mr Osborne]

I can assure my hon. Friend that we are not going to repeat the mistakes of the last Labour Government. We are absolutely clear, when it comes to regulating the City and banking—I am about to give evidence to the Banking Commission—that we are taking the tough action. [Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) says “Pathetic”, but he was the City Minister when the Royal Bank of Scotland bought ABN-AMRO and when Northern Rock was offering 125% mortgages. He was the City Minister when the City got completely out of control, and he should get up and apologise for it.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

In May last year, the Chancellor said that when Britain’s outlook was moved off negative, it demonstrated that the country now had economic stability. Now that it is being downgraded, would he like to give his assessment of our economic stability?

[Mr Osborne]

I know that Labour MPs keep reading out the Whips’ note, but perhaps the Whips will also circulate a note on what Labour’s economic policy is, and then we can have a more constructive debate.

[Philip Davies (Shipley) (Con)]

Does the Chancellor agree that the reason he inherited such a big deficit was that the last Government had overspent, rather than that we were under-taxed? Is growth not sluggish because the tax burden is higher now than the one that he inherited, and is the deficit not higher than it should be because spending is higher than the level that he inherited? Is it not about time that we had some proper spending cuts and some proper tax cuts to put money in people’s pockets and get some growth into the economy?

[Mr Osborne]

We have further difficult decisions on spending to take this year to set the spending round for 2015-16. I know that my hon. Friend has always been consistent in supporting all the difficult spending decisions, so I look forward to that consistent support in the years ahead.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Over the weekend, the Labour and Tory Better Together no campaign was giving out leaflets to the effect that an independent Scotland would never, ever secure the triple A rating of the UK, just as the UK was losing that triple A rating. Does the Chancellor agree that his nonsensical economic scaremongering about an independent Scotland has totally failed, and that his credibility and that of the no campaign is nothing other than a treble Z?

[Mr Osborne]

If the SNP is to persuade the Scottish people to vote for independence, it must address fundamental economic questions that it has been unable to answer about the currency it would use and the fiscal agreement it would seek should it want to use the pound with the rest of the United Kingdom. There are also fundamental questions about the financial services industry based in Scotland. I remind the hon. Gentleman that the Royal Bank of Scotland is headquartered in Scotland. The SNP is simply unable to answer those questions at the moment, and as a result I think people doubt the case it is making for independence.

[Conor Burns (Bournemouth West) (Con)]

Does the Chancellor agree that rather than sneering at private sector job creation, we should welcome the fact that 1 million new jobs have been created since the general election? Will he assure me, the House and the markets that, in framing the coalition’s economic policy, he will continue to listen—and indeed listen significantly more—to those who run such businesses and who are taking on new employees, rather than to those on the Opposition Front Bench who landed us in this mess?

[Mr Osborne]

I agree with my hon. Friend and we should listen to the demands of the business community. It wants a more competitive business tax regime and additional help with investment, which we are providing. It wants essential economic infrastructure that was not provided over the past 15 years, and we are providing that. It wants a lighter regulatory regime, and we are providing that for small businesses. My hon. Friend is right: businesses large and small are the engine of growth in our economy, and it is welcome that there have been 1 million private sector jobs since the election.

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

The Chancellor has been noticeably more comfortable this afternoon looking backwards rather than forwards. Will he please tell the House his estimate for the likely impact of recent events on the sterling exchange rate, and what the implications will be for inflation?

[Mr Osborne]

I do not comment on the level of sterling. The G7, which the UK chairs at the moment, issued a clear statement that we are not targeting an exchange rate and that the exchange rate flows from the economic policies that we pursue at home to improve our domestic economies.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

Does my right hon. Friend agree that for the Labour party to have any fiscal credibility it should just say sorry—sorry for the debt, sorry for the deficit, and sorry for the pain it has caused my constituents?

[Mr Osborne]

My hon. Friend puts the point powerfully and until we hear that apology from the shadow Chancellor, frankly he will not have the credibility to offer an alternative.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

The Chancellor’s message to my constituents seems to be that things are only getting worse. Will he lead by example and inform the House what personal sacrifices he will have to make as a result of this downgrade?

[Mr Osborne]

My message to all families is that in the markets interest rates remain low and have remained low today. That is the credibility test for the Government’s economic policy, and as I say, for families paying a mortgage or businesses with a business loan, that is crucial.

[Jason McCartney (Colne Valley) (Con)]

Those on the Opposition Front Bench should come out into the real world from their Primrose Hill mansion. Last week in my constituency I visited businesses that are winning new orders, expanding, and taking on workers and apprentices. Will the Chancellor pledge to continue investment in the regional growth fund, enterprise zones and infrastructure spending such as the electrification of the trans-Pennine route that is helping businesses in my constituency?

[Mr Osborne]

I read in the paper that the Primrose Hill mansion my hon. Friend refers to falls just below the threshold for the new mansion tax proposed by the Labour economic team. However, my hon. Friend makes a good point: we must invest in economic infrastructure across the country. People have been calling for years for the electrification of the trans-Pennine route, and indeed the northern hub. It did not happen under a Labour Government but it is happening under this Government.

[Mr Kevin Barron (Rother Valley) (Lab)]

Does the Chancellor accept that the state of the British economy and its flatlining in terms of growth is a good example of how party political scaremongering at the Dispatch Box for three years does not work?

[Mr Osborne]

I am not sure I really understand what the right hon. Gentleman is getting at. Yes, of course we have a difficult economic situation, because we inherited a 11.5% budget deficit and were coming out of a contraction of the economy of 6%—the right hon. Gentleman talks about flatlining but there was a 6% contraction of the economy when the shadow Chancellor was in the Cabinet. That is what we are dealing with. As I say, we have reduced the deficit, created 1 million jobs, and we have low interest rates.

[Mr David Nuttall (Bury North) (Con)]

Does the Chancellor agree that the only real way for the UK to maintain its economic credibility is to continue to cut spending in real terms and to start living within its means, so that we and our British companies can start to compete more effectively in the global marketplace?

[Mr Osborne]

We have to reduce spending and, as I have said, we will have a spending round later this year. We are reducing the share of national income taken by the state. When we came to office, almost 48% of national income was taken by the state, which was a completely unsustainable position. That position was never advocated by the Labour party when it sought office, but that is how it left the country. It now apparently wants to return to that position. As far as I understand the shadow Chancellor, who shakes his head, he does not support a single cut the Government have made.

[Paul Blomfield (Sheffield Central) (Lab)]

There is an issue of accountability. In the Chancellor’s February 2010 Mais lecture, which was still on the Conservative party website this afternoon, he said:

“in order to bring some accountability to economic policy, I have set out eight benchmarks…against which you will be able to judge whether a Conservative Government is delivering”.

The first benchmark is that the Conservatives

“will maintain Britain’s AAA credit rating.”

How will he be held accountable for his failure?

[Mr Osborne]

I said very clearly in my statement that that is a benchmark, but it is one of a number of benchmarks. The No. 1 benchmark was fiscal credibility and market credibility, which is precisely what the Government have delivered.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Anyone running a household budget knows that they have to live within their means, and that to start paying off debts, they have to reduce spending if they are not getting as much income. Will my right hon. Friend confirm that households will be worried about higher mortgage rates if we pursue the Opposition’s plans?

[Mr Osborne]

My hon. Friend is absolutely right. If we lose that credibility in the markets and are unable to convince the world that we can pay our way—that would be the case if we had a reduced commitment to fiscal consolidation—interest rates would go up, which would affect families with mortgages and small businesses with those crucial loans that are helping them to expand and take people on.

[Mr Dave Watts (St Helens North) (Lab)]

Will the Chancellor change the economic medicine before he kills the patient?

[Mr Osborne]

We have revived the patient from the near-death experience it had under the Labour Government.

[Michael Ellis (Northampton North) (Con)]

Does my right hon. Friend agree that, as the Labour party has no economic policy of its own and no wish but to borrow more and more on the never-never, if the shadow Chancellor were in my right hon. Friend’s shoes, this country would be looking at default?

[Mr Osborne]

The great thing is that we, as a country, have experienced the shadow Chancellor’s economic policy, because he was the chief economic adviser to the Government. We had the biggest financial crisis in our history and the deepest recession for 100 years, and many people lost their jobs. We have had a dry run of what it would be like if he were ever allowed back.

[Paul Flynn (Newport West) (Lab)]

For the past three years, the Government have blamed all problems on the EU, the previous Government or the civil service. On what precise date will the Government take responsibility for the ineptocracy they have created?

[Mr Osborne]

Unless the hon. Gentleman can find anyone else to blame for the fact that there was an 11.5% budget deficit—[Interruption.] That was what we inherited from Labour, and we have cut it by a quarter. That just shows how economically illiterate Labour Back Benchers are.

[Mr James Clappison (Hertsmere) (Con)]

As matters stand today, the gilts market is flat, the stock market is going up, and the cost of Government borrowing stands at historically low levels. What does my right hon. Friend believe will be the impact on the cost of Government borrowing if they borrowed even more, if the deficit was going up rather than down, if the national debt was thereby being added to, and if we followed the kamikaze economics advocated by Opposition Front Benchers?

[Mr Osborne]

We would have the same outcome as happened to the kamikaze pilots.

[Julie Hilling (Bolton West) (Lab)]

The Chancellor says that he will not run away from dealing with the country’s debts. When will he accept that the debts have actually run away with him, and that he has got no answers? When will he resign?

[Mr Osborne]

We are confronting the problems that the hon. Lady’s party left this country. If she is seriously trying to blame us for the fact that there was an 11.5% budget deficit, or for a financial crisis that was brewing while the shadow Chancellor was regulating the City, she needs to read her history books.

[Charlie Elphicke (Dover) (Con)]

Is not the priority to preserve the record low interest rates that have helped hard-pressed families and businesses in an extremely difficult time? Would it not be madness to panic and borrow billions more? Would that not put those low interest rates at great risk?

[Mr Osborne]

My hon. Friend is absolutely right. As I have said before, the Institute for Fiscal Studies says that the Labour plans would add £200 billion extra to borrowing. In the end, the clue is in how one answers the questions, and the shadow Chancellor was asked six times on the radio—many will have heard it—whether borrowing would go up under a Labour Government. He did not want to give a clear answer. Why is that? It is because Labour does not want to admit that borrowing would go up. Finally, on the seventh question, he was forced to admit it, but it is the policy that dare not speak its name.

[Natascha Engel (North East Derbyshire) (Lab)]

As well as the lack of growth in the economy, Moody’s also cited in its downgrading decision its concern about the implementation risks surrounding the current austerity plans. What is the Chancellor doing to address those?

[Mr Osborne]

That is the first sensible question we have heard from the Labour party all afternoon. I agree with the hon. Lady that we have to make sure that the decisions we take on reducing the size of Government are implemented. Collectively as a Parliament we have to reduce Government spending and we have to get the deficit down. I look forward to her support in the Division Lobby as we take further difficult decisions this year.

[Andrew Selous (South West Bedfordshire) (Con)]

We learned this morning that the UK oil and gas industry is set to invest an extra £100 billion in the industry, with anticipated tax revenues of a further £25 billion to the UK Exchequer. Does that not give us some cause for confidence in and optimism for the public finances as we move forward?

[Mr Osborne]

My hon. Friend is right that it is very welcome news from the oil and gas industry, and it is partly because we have been able to provide certainty on decommissioning relief, which it has long sought. One of the challenges for the UK economy is the secular decline in the North sea oil field as it reaches its maturity. Although we will get oil out of it for many more years, we have to look to the post-North sea future, and that is one of the big challenges for the SNP.

[Chris Evans (Islwyn) (Lab/Co-op)]

As a political strategist, does the Chancellor understand that linking the fortunes of the UK economy to discredited credit rating agencies is at best naive and at worst plain stupid?

[Mr Osborne]

That question rather reveals Labour Members’ confusion today. They cannot decide whether this credit rating decision matters or not. What I am saying is that we have to have the credibility to show the world that we can pay our way, and that is precisely what we are doing.

[Andrew Stephenson (Pendle) (Con)]

Despite the bluster of the Labour party, in Pendle we have seen a 106% increase in apprenticeships, and unemployment fell again last month—it is now down to just 4.8%. I urge my right hon. Friend to stick to the course that he has set, because following the shadow Chancellor’s plans for £200 billion of extra borrowing would be an absolute disaster for manufacturers in the north of England.

[Mr Osborne]

My hon. Friend is absolutely right. In Nelson, Barnoldswick and places he represents, there are successful small and medium-sized businesses, as well as large firms such as Rolls-Royce, which are exporting more. We are supporting them with lower business taxes and helping them with vital economic infrastructure. We have to go on supporting those businesses, as he does, because they are the backbone of this country, and they will provide the secure and stable economy that we need in the future.

[Kerry McCarthy (Bristol East) (Lab)]

The Chancellor talked about reviving dead bodies, and he may recall the Hollywood film about medical students trying to create near-death experiences. It was called “Flatliners”. Can the Chancellor predict when the UK will regain its triple A credit rating from Moody’s and say what needs to be done in the interim to make sure that we do so?

[Mr Osborne]

I will not make a prediction about that. [Interruption.] Moody’s is clear that we can win the rating back provided that over time we show our commitment to dealing with our debts and rebalancing our economy, and we will of course provide that commitment. Its market notice is clear that a reduced political commitment to fiscal consolidation—the policy advocated by the shadow Chancellor—would risk further downgrades.

[Graham Evans (Weaver Vale) (Con)]

Will my right hon. Friend the Chancellor remind the House that he has cut the deficit by a quarter under this Government? Will he also remind the House that it is Labour Chancellors who ultimately run out of money and have to go to the IMF to be bailed out?

[Mr Osborne]

It is an eternal truth that all Labour Governments have left office with unemployment higher than when they came in. I think that they have all left the country with a fiscal crisis, so let us make sure that history does not repeat itself.

[Ian Lavery (Wansbeck) (Lab)]

The Chancellor of the Exchequer has quite simply lost all credibility as an individual and all credibility as a Chancellor. What will he do to regain the confidence of the general public? Hundreds of thousands of people have lost greatly as a result of the failure of his economic policies.

[Mr Osborne]

Actually, the unemployment rate is lower today than when we came into office, and there are 1 million more people with jobs in the private sector than there were two years ago. Families want to know that the Government are determined to tackle the nation’s problems, to keep rates low, and to ensure that we provide the right environment for business. They have our assurance that we will do that.

[Stephen Mosley (City of Chester) (Con)]

One of the problems highlighted by the Moody’s downgrade was the sluggish nature of international growth. Will the Chancellor use the forthcoming G7 Finance Ministers meeting in May to argue for the reduction of barriers to international trade, to encourage other countries to keep on the path of lowering their own debt, and to try to ensure that we generate the international growth that will benefit all countries?

[Mr Osborne]

I agree with all the sentiments expressed by my hon. Friend. Of course, all countries in the western world are confronting their debt problems. When it comes to trade, one of the big initiatives we need to pursue in the next couple of years, principally through G8 leaders rather than the G7 Finance Ministers, is the possibility of a free trade agreement with the United States. It was encouraging that the President mentioned that in his inauguration speech. That is one objective, alongside EU free trade agreements with India and Japan, that we should pursue in the coming months.

[Helen Jones (Warrington North) (Lab)]

Last year, just before he was booed at the Olympics, the Chancellor said that this country’s triple A credit rating showed that the world had confidence in his policies. What does he think the downgrading shows?

[Mr Osborne]

As I have been explaining for the past 57 minutes, the test is there each day and each week as we have to borrow money to fund the deficit we inherited—even if it has come down. That is the test, and at the moment the world is lending us money at some of the cheapest rates in our history.

[Gavin Barwell (Croydon Central) (Con)]

Will my right hon. Friend confirm that a significant part of the deficit is structural, which means that, as vital as growth is, it will not do anything to reduce the structural element? As long as Opposition Front Benchers refuse to acknowledge the key fact that we need to start living within our means again, they will not be fit to return to office.

[Mr Osborne]

My hon. Friend is absolutely right, and that is why one of our debt objectives relates to the structural deficit. The structural deficit is the part that does not go away when the economy grows. The shadow Chancellor’s argument that all these problems will disappear as the economy grows is simply nonsense. That was his argument before the financial crisis, that is why Britain went into the financial crisis with a 5% structural deficit, and that is why, when boom turned to bust, the country found itself without any money.

[Alex Cunningham (Stockton North) (Lab)]

Unemployment in my constituency is still higher than it was a year ago, and many of the people in the dole queue feel humiliated that they cannot find a job under this Chancellor’s policies. Does he not accept that he is the one who is now humiliated and that he should lose his job?

[Mr Osborne]

Of course we are working in the north-east, as elsewhere, to create the right conditions for businesses to grow. Unemployment has fallen—the unemployment rate is lower; a million jobs have been created; the number of youths unemployed has fallen as well; and there is a record number of jobs and a record number of women in work. Those things are welcome, but of course we have to do more to help businesses grow, and that is precisely what we are going to do.

[Bill Esterson (Sefton Central) (Lab)]

The Chancellor has spent the past hour denying what he said previously, but the reality is that he staked his entire reputation on maintaining this country’s credit rating. Why on earth is he still in a job?

[Mr Osborne]

I have made it very clear that although the credit rating is an important benchmark, it is one of a number of benchmarks. We are tested every day out there in the market, and what we have not heard from the shadow Chancellor is any alternative. It is all very well criticising the current Government’s economic policy, but what is the Opposition’s alternative? They have to have a policy to attack a policy.

[Sheila Gilmore (Edinburgh East) (Lab)]

This time two years ago the Chancellor was telling us that he had already created half a million new jobs, most of which were probably the result of the previous Government’s economic stimulus—[Laughter.] Unless, of course, people think this was an instant response in six months. Perhaps it was, but that still leaves us with a much slower rate of growth of new jobs since that date. He may not be aware that the Minister of State, Department for Work and Pensions, the hon. Member for Fareham (Mr Hoban) admitted at the last Department for Work and Pensions questions that free jobs—where people were working without wages—were included in his totals. Is it not time he re-examined the reality of these so-called “employment figures”?

[Mr Osborne]

Frankly, the numbers the hon. Lady quotes are nonsense. The employment creation rate last year—perhaps we should give her some credit for saying last year—was the highest since 1989.

[Nic Dakin (Scunthorpe) (Lab)]

Does the Chancellor think that the loss of the UK’s credit rating is what the Prime Minister was thinking of when he said

“the good news will keep coming”?—[Official Report, 24 October 2012; Vol. 551, c. 917.]

[Mr Osborne]

Last week we had the good news that unemployment had fallen again and employment had gone up, and we had the forecasts from the European Commission. Although we would of course want UK growth to be higher, they show that it is actually forecast to be higher than that of France, Germany and many of our European neighbours. We are in a tough neighbourhood—it is a tough economic situation—but we are confronting our country’s economic problems.

[Alison McGovern (Wirral South) (Lab)]

The Chancellor’s response to the questions today has proved that, as ever with him, it is politics first before economics. Now that he has failed the test he set himself, will he turn his attention to the test that Wirral people set him, specifically on under-employment? What is he going to do to help people who cannot get the hours they need in work to put food on the table?

[Mr Osborne]

Of course we want to help people who are not currently working the hours that they want to work; we want to help them by helping businesses to expand to take on more people. As well as jobs going up by 888,000 in total and private sector jobs going up by 1 million or more, the number of hours worked in our economy has also gone up. Labour argues that it is all to do with under-employment, but that is not the case. Of course we want to help people who are working part time but want to go full time and people who want to work more hours. The best way to do that is to create an environment in which businesses want to expand and take people on.

[Kate Green (Stretford and Urmston) (Lab)]

Does the Chancellor not accept that the reason why gilts have not really moved in the wake of the downgrading is not a tribute to the Government’s economic policy, but is symptomatic of a deep pessimism about the long-term growth prospects for our economy?

[Mr Osborne]

If that were the case, why would German rates be lower than ours?

[Mr William Bain (Glasgow North East) (Lab)]

On 2 February 2010, the Chancellor said

“we will protect Britain’s credit rating and international reputation.”

Having delivered the third-lowest growth in the G20 since 2010, with real wages having fallen every month that he has been in office, the cost of living staying higher for longer, according to the Bank of England, and our nation’s productivity slumping, it is his reputation that lies in ruins in the eyes of the British people today.

[Mr Osborne]

I cannot believe that the hon. Gentleman waited an hour and four minutes to read us the Whips’ handout again. As I have said, perhaps the Labour party will circulate its alternative economic policy, so that we can have a real debate about it in the House.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Given the loss of 1,000 private sector jobs in the Hull area over the last couple of months, and the 15,000 people who are looking for work, does the Chancellor think that the downgrading will help or hinder the economic recovery of the Humber?

[Mr Osborne]

What will help the economic recovery of the Humber are, first of all, the low interest rates, which, as I said earlier, are tested every day out there in the bond market. In addition, however, we have opened new enterprise zones in east Yorkshire, we have cut the bridge tolls on the Humber bridge—which I would have hoped that the hon. Lady would welcome—and we have invested in new road projects in and around the area, which had been demanded for years.

[Andrew Gwynne (Denton and Reddish) (Lab)]

In 2010, the Chancellor pledged to secure the recovery. By 2011, that had changed to maintaining Britain’s triple A credit rating. Is not the Chancellor’s failure to deliver on the first promise the reason for our losing the second?

[Mr Osborne]

We inherited an incredibly difficult situation. The economy had contracted by 6%; we were experiencing the deepest recession in the country’s modern history, and arguably the worst financial crisis in its entire history. Since then we have made difficult decisions, but they have seen interest rates stay low, they have seen the deficit come down, and they have seen the creation of a million jobs. The hon. Gentleman should be welcoming that.

[Mr Speaker]

I call Mr Flello. Is Mr Flello still with us to give us his views?

[Robert Flello (Stoke-on-Trent South) (Lab)]

I am most grateful, Mr. Speaker. This is definitely worth waiting for. I have handwritten notes.

If one of the Chancellor’s pals in one of the banks had lost that bank’s triple A credit rating, he would have gone. Will the part-time Chancellor now either become full-time and change his plan, or go?

[Mr Osborne]

I am not sure that that was worth waiting for. Let me say to the hon. Gentleman that he either thinks it is important for us to confront our debt problem—in which case he should support me as we make the difficult decisions that will enable us to do that—or he thinks that that is not important, and that we can take a difficult situation and make it very much worse. No amount of handwritten notes will help him in those circumstances. The main handwritten note from the Labour party that I remember is the one that said there was no money left.

[Jack Dromey (Birmingham, Erdington) (Lab)]

In the name of protecting our triple A rating, the Chancellor cut £4 billion of affordable housing investment, causing house building to collapse, pushing housing benefit bills up, and creating the biggest housing crisis in a generation. Rather than continuing to borrow to pay the costs of failure, will he now endorse the shadow Chancellor’s call for investment in affordable house building to create jobs and apprenticeships and to get the economy moving, which he has so signally failed to do?

[Mr Osborne]

That is a call for yet more borrowing. At least the hon. Gentleman is happy to advocate that in the House of Commons, whereas the shadow Chancellor dare not talk about his economic policy.

The capital spending in the plans that we inherited from the last Labour Cabinet—which, presumably, were agreed to by all members of that Cabinet—was lower than the capital spending in the plans that we have now. Why? Because we have made difficult decisions on welfare bills and other areas of resource spending in order to invest in capital. As for housing, with schemes such as Firstbuy and NewBuy and the new housing guarantees, we are getting behind the housing industry. [Interruption.] The hon. Gentleman says “Going down”, but the rate of housing starts under the last Labour Government was the lowest since the 1920s. That is the situation with which they left us.

[Andy Sawford (Corby) (Lab/Co-op)]

Only a few months ago, people in my constituency gave a verdict on who they thought was responsible for the state of our economy. The number of jobseeker’s allowance claimants in my constituency has risen by 127 in the last two months. It is the toughest place in the country for young people to find work. Does the Chancellor realise just how out of touch he will sound to all those people who desperately want a Government who are on their side? How can he look foreign investors in the face and tell them to invest in my constituency and others, given that he has now failed the test that he set himself?

[Mr Osborne]

Foreign investors are investing in Britain, and the hon. Gentleman should welcome that. We are also investing in the east midlands—

[Andy Sawford]

Not in my constituency.

[Mr Osborne]

The hon. Gentleman says not in his constituency. He is the MP for Corby, and for 13 years people wanted the Corby link road, which is being constructed—

[Andy Sawford]

Where is it?

[Mr Osborne]

He asks where it is; it is being built at the moment. For 13 years people wanted that road and it was not produced, but it is now being produced under this Government.

[Mr Speaker]

I thank the Chancellor of the Exchequer and, for that matter, the 69 Back-Bench Members who contributed in 57 minutes of exclusively Back-Bench time for their notable succinctness.