18:04 - The House divided: - Ayes: 292 / Noes: 193 - Question accordingly agreed to.
The Chancellor of the Exchequer (Mr Philip Hammond)
I beg to move,
That the Charter for Budget Responsibility: autumn 2016 update, which was laid before this House on 17 January, be approved.
This debate is not about the technicalities of fiscal policy. It is about our commitment to budget responsibility and delivering it in a way that is appropriate to our current circumstances. It is about supporting our economy through the uncertainty following the Brexit vote and preparing it to take full advantage of the new opportunities ahead. It is about securing Britain’s economic future, supporting working families and ensuring that our children are not burdened with debts that our generation chooses not to pay.
When my predecessor came into office in 2010, he inherited the highest budget deficit in post-war history, with Government borrowing £1 of every £4 that they spent. Debt had almost doubled since 2005-06, unemployment was at 8% and the UK’s percentage increase in national debt between 2007 and 2010 was the biggest in the G7. The 2008 recession showed us the price that is paid for seven years of irresponsible fiscal policy, and it demonstrated once again that it is always the poorest in our country who suffer the most when the economy crashes and unemployment rises.
We remain resolute in our determination to return the public finances to balance, to get debt falling and to pay our way in the world, but we have to do so in a way that protects our economy and our living standards in challenging times. At the same time, we must maintain our focus on the long-term challenge of productivity—a challenge we must rise to if we are to seize the opportunities that lie ahead for Britain.
In proposing this charter, I build on the work of my right hon. Friend the Member for Tatton (Mr Osborne). His plans, actioned by the hard work of millions of people up and down the United Kingdom, have turned our economy around. The employment rate is at a record high, unemployment is at an 11-year low and income inequality is at its lowest level in 30 years. The OECD and the International Monetary Fund expect the UK to have been the fastest growing economy in the G7 in 2016. The economic plan that has delivered jobs and growth also reduced the deficit from 10.1% to 4% of GDP last year, so that, in 2015-16, we borrowed £1 for every £10 we spent. These are significant achievements, but we have further to go.
In the medium term, we are well placed to take advantage of the opportunities that leaving the European Union presents. But at the time of the autumn statement, the Office for Budget Responsibility judged that, in the near term, uncertainty about our new trading relationship with the EU, coupled with the impact of higher inflation driven by the depreciation of the pound, is likely to reduce the rate of economic growth relative to its previous expectations.
George Kerevan (East Lothian) (SNP)
The Chancellor makes an interesting case about the strength of the economy. Does he not associate some of the growth in the economy with the fact that the Government borrowed and invested in the economy? Borrowing is therefore not necessarily a bad thing in itself.
Mr Hammond
I think my track record—of one fiscal event—answers the hon. Gentleman’s question. Clearly, I made the decision in November to borrow a discretionary £23 billion to invest in areas specifically focused on raising productivity in the UK economy. So, of course, the answer to the question “Can borrowing to invest ever be sensible?” is yes—if the circumstances are right, if it is a judicious amount of borrowing and if it is precisely targeted to achieve a purpose.
Jeremy Quin (Horsham) (Con)
This point is related to the one raised by the hon. Member for East Lothian (George Kerevan). Does the Chancellor believe that the charter gives him enough flexibility to address any economic issues that may come through over this Parliament?
Mr Hammond
As I shall explain in a moment, one purpose of the charter and the new fiscal rules is to allow sufficient flexibility to deal with any unexpected, unforecast shocks during a period of more-than-usual uncertainty in the economy.
The OBR’s judgment at autumn statement implied £84 billion of additional borrowing over the forecast horizon, although I should say that the OBR acknowledges a higher-than-usual degree of uncertainty in that forecast. So, at autumn statement, I had to make a judgment: I could have looked for further savings to maintain the trajectory of consolidation my predecessor set out, but I judged that that would not have been the responsible way to support the economy in present circumstances. So, at the autumn statement, I set out our new plan, which offered fiscal headroom, if needed, to deal with unforeseen, unforecast economic shocks, and scope to invest to raise productivity and so to lift real wages and living standards.
Let me set out the principles that inform the fiscal rules I have placed before the House today. First, the public finances should be returned to balance at the earliest date that is compatible with the prudent management of the economy. I judge, in current circumstances, that that will be in the next Parliament, after our EU exit is complete. In the interim, I have committed to reducing the structural deficit to below 2% of GDP by the end of this Parliament. Targeting a structural deficit means that I can let the public finances respond to any unforeseen short-term fluctuations in the economy through the operation of the so-called automatic stabilisers. The OBR forecast at autumn statement 2016 that I will meet this rule two years early. This leaves some headroom—about £27 billion—for a discretionary response to any further shocks, should such a response be necessary.
Secondly, I have committed to getting debt falling by the end of this Parliament. This will be the first time since the start of the century that debt has fallen. Again, the OBR forecasts that debt will begin falling two years before our rule requires.
Delaying the return to balance until the next Parliament not only ensures that we have fiscal headroom to respond to shocks, but means that the Government have scope to invest to improve the UK’s productivity. The productivity gap is the biggest challenge facing the UK economy. It has been said many times before, but I am going to say it again: it takes workers in Germany less than four days to produce what we produce in five days. That means that many British workers work harder—longer hours—for lower pay than their counterparts. This has to change if we are to build an economy that works for everyone.
Michael Fabricant (Lichfield) (Con)
My right hon. Friend is absolutely right to point to the productivity gap, but may I gently chide him by letting him know that in this respect the Nissan plant in Sunderland is second only to the plant in Yokohama in Japan—its headquarters? It is, outside Japan, the most profitable and productive engineering plant in the Nissan group.
Mr Hammond
It is always a pleasure to be gently chided by my hon. Friend, who is of course absolutely right. That is the conundrum about Britain’s productivity. We have some of the most fantastically productive companies and businesses—indeed, some of the most productive cities—in the world, but we also have some of the poorest examples of productivity performance. The challenge before us is to work out how to spread across the economy the best practice in productivity that we see in our economy so that all regions, and all corners and sectors of our economy, can share in this productivity performance and thus deliver the higher real wages and living standards that that implies. This is the biggest challenge facing the UK economy, but one that successive Governments have failed to do anything effective about.
Mark Field (Cities of London and Westminster) (Con)
I am certainly not in the mode of wanting to chide my right hon. Friend for anything in particular, but it is worth putting the productivity issues into context. It is also the case, as it has been during his time in office, not just as Chancellor but since 2010, that our unemployment rate has been rather lower, and that may have been a factor in the poor productivity that the UK economy has had relative to many of our European partners. This Government—or perhaps more importantly, British businesses—have made keeping employment rates a higher priority than the urgent need for improvements to productivity to which he refers.
Mr Hammond
My right hon. Friend, who represents one of the most productive sub-regions in the entire European Union, is of course right. There is a perfectly respectable economic argument that, as participation in the labour force increases, bringing more marginally productive workers into the labour force, that may have a depressing effect on labour productivity overall. However, the employment participation rates in Germany and in the UK are not all that different. I do not think we can explain a 30% productivity performance gap by differences in levels of participation in the economy. Indeed, there is much debate among economists about the cause of this productivity gap, and the cause of the generally poor productivity performance of developed economies over the past few years.
We chose at autumn statement 2016 to invest an additional £23 billion through a national productivity investment fund, which aims to raise productivity, support job creation, and boost real wages and living standards. Every penny we spend from this fund will be used to boost economic infrastructure, research and development, and housing. It will bring total investment in these areas to £170 billion over the next five years. It means that gross public investment will be at least 4% of GDP for the rest of this Parliament—that is higher than in any period between 1993 and the great crash.
Stephen Hammond (Wimbledon) (Con)
The Chancellor is right to place productivity at the centre of the economic problem, and the productivity fund will undoubtedly be helpful in infrastructure. Another challenge is to get the corporate sector back into investing. The factory of which my hon. Friend the Member for Lichfield (Michael Fabricant) spoke is a new one with new technology. Surely, one of the lessons that we can learn from his experience is that getting corporates to invest will boost productivity, and I wonder what measures the Chancellor is hoping to bring forward in that area.
Mr Hammond
My hon. Friend is absolutely right. Public investment in infrastructure is part of the story, as is public and private investment in skills. Increasing the stock of capital available for each worker to use is also part of improving labour productivity.
We know that business hates uncertainty, and the uncertainty that has been created by the Brexit vote has undoubtedly slowed down business investment decisions. However, the problem of productivity that we are looking at is not a short-term problem in response to the Brexit vote; it is a much longer-term challenge in the UK economy. Large companies in the UK are well capitalised, and their levels of capitalisation are similar to those of comparable businesses elsewhere. I suggest that there is a challenge over the capitalisation of smaller businesses in the UK, and that access to long-term capital in the UK is one of the challenges that we need to address. The Government undertook at autumn statement to conduct a review of the availability of patient, long-term capital for smaller businesses in the UK.
The money that I have just spoken about for public investment through the national productivity investment fund will provide the financial foundations for our industrial strategy, which was launched yesterday and builds on Britain’s strengths. Let me be clear that this charter is not consistent with Labour’s proposal to borrow at all times for anything that it terms “investment”. If any of my hon. Friends are thinking that that sounds horribly familiar, that is probably because it is essentially Gordon Brown’s old golden rule, which is the very antithesis of budget responsibility. We all know where that got us: an unsustainable boom in Government spending that took us into the great recession with the largest structural deficit in the G7. Labour’s big idea is to repeat the same mistake all over again. That is yet another demonstration that the Opposition are not willing to learn from the past and have no ideas for the future.
What I propose is different. The national productivity investment fund will be targeted at economic infrastructure projects, housing and research and development that will boost national productivity. The National Infrastructure Commission will ensure that our future infrastructure decisions are based on independent, robust analysis. We choose to invest in productivity not just because doing so can transform the growth potential of our economy, but because it contributes to addressing the social challenges that we face. Sustainable living standards, for all parts of our country and all sectors of our population, depend on our improving our productivity through better skills, opportunities to retrain, better infrastructure and better private investment. That investment is possible only because we are prepared to take tough decisions to maintain control of current spending.
As the OBR made clear last week in its fiscal sustainability report, the end of the Parliament is not the end of the challenge. That report contains some tough messages and some important early warnings. The OBR sets out clearly the significant challenges we will face as our population continues to age over the next half century. Driven by increasing life expectancy, low fertility rates and the retirement of the baby boomer bulge, our dependency ratio will go from 3.5 people of working age supporting each retiree to just 2.2 in 2066. The OBR projects that those demographic trends will lead to increased spending in age-related areas such as health, long-term care and the state pension, but that the same demographic and economic trends mean that revenues will remain broadly stable.
The OBR notes that we are not the only country facing those challenges. It also notes that the long-term figures are highly uncertain and should be seen as illustrative projections rather than precise forecasts. None the less, the potential impact on the public finances is significant.
On the assumption of no policy response—in other words, that the Government do nothing, which I promise hon. Members will not be the case—debt could rise to 234% of GDP by the end of the 50-year projection period, with two thirds of the increase since the 2015 report attributable to healthcare spending. In the rather nearer term, the report also shows that without further policy action we will not hit a surplus in the next Parliament.
That is why at autumn statement 2016 I reiterated that the tax and spending commitments for this Parliament set out in the 2015 spending review will be delivered, and we will meet our manifesto commitments to protect the budgets of priority public services. I also confirmed that the Government will review public spending priorities and other commitments for the next Parliament in the light of the evolving fiscal position at the next spending review. There will be more difficult choices to make before we have completed the job of restoring the public finances to health.
Controlling our welfare bill is a vital element of getting back to balance. At £220 billion, welfare represents a quarter of all Government spending. In the absence of an effective framework, spending on working-age benefits tripled in real terms between 1980 and 2014. By 2014, each person in work in this country was contributing, on average, £3,000 per year to the cost of working-age benefits. Action taken since 2010, including the welfare cap in the previous charter, has stabilised welfare spending, and we will maintain that stability.
The charter before the House introduces a new medium-term welfare cap, which is set to reflect the current forecast of eligible welfare spend, taking into account the policy changes made since the last Budget. The cap will apply to welfare spending in 2021-22, and performance against this cap will be formally assessed by the OBR once—in the year before that, 2020-21. In the interim, progress towards the cap will be monitored by the Government, based on the OBR’s forecasts of welfare spending. Shifting from an annual to a medium-term cap will avoid the Government having to make short-term responses to changes in the welfare forecast, while ensuring that welfare spending remains sustainable over the medium term.
Let me reiterate to the House what I have said previously: the Government will deliver the overall total of welfare savings already identified, but we have no plans to introduce further welfare savings in this Parliament beyond those already announced.
Michael Fabricant
My right hon. Friend is being very generous in giving way. He quite rightly points out that Brexit creates uncertainty, which business does not like, but on the welfare cap and overall welfare spending, can he identify any advantages from Brexit? Tighter controls on certain types of immigration might mean that the forecasts are lower than he anticipates.
Mr Hammond
My hon. Friend is of course right that we will have the ability to set our own immigration controls after leaving the European Union, and there could be an impact at the margin on welfare claims. I think the OBR would say, although this is for them, not for me, that that would probably have quite a marginal effect, as all the data suggest.
This and the previous Government have made significant progress in bringing this country back from the brink of financial collapse and fiscal ruin. The framework provided by our charter for budget responsibility played a major role. My predecessor aspired to eliminate the deficit entirely in this Parliament, but autumn statement 2016 revealed new fiscal pressures and the referendum result has created additional uncertainty in the economy. When the facts change, it is right to change plans. This charter strikes the right balance for our current circumstances. It is a credible plan to restore the public finances to health, with enough flexibility to support the economy in the short term and scope to invest in productivity to boost real wages and living standards in the medium term. It is a charter that will support Brexit, helping us through the short-term uncertainty and preparing us to seize the opportunities that lie beyond it. It is a charter that underpins our vision of an economy that works for everyone, and I commend it to the House.
John McDonnell (Hayes and Harlington) (Lab)
The motion before the House rewrites the rule by which the Government intend to manage their fiscal policy, as the Chancellor has set out. This rewriting is urgently needed because the Government’s previous fiscal rule lies in tatters. As we argued when the old rule was introduced in November 2015, it was a political device rather than a sound economic tool.
We argued that the commitment in the previous version of the charter to reach a budget surplus by the end of the decade was unachievable. That became obvious by the Budget of last year, when the previous Chancellor had to stretch budget accountancy to breaking point simply to claim that the economy was still on course to achieve the target. That was well before the referendum. By the summer, the target had to be abandoned entirely. It was dropped because the surplus target was never about sound management. No credible economist could be found to support the surplus target because it had no plausible economic justification. The Treasury Committee rightly concluded that the old surplus rule was not
“credible in its current form”.
The previous Chancellor made a political choice to impose the surplus target. Therefore, the austerity measures that the target required were not just cruel, but unnecessary. Members will recall that those measures meant that people living with disability were suddenly threatened with the loss of their independence, and those going to work, doing the right thing, looking after their children and just attempting to get by were suddenly faced with serious cuts to their income. The tragedy is that all those sacrifices and all that suffering were in vain.
The record of this Government in office speaks for itself: at the same time as imposing grinding spending cuts, they have added, as of this morning’s figures, almost £700 billion to the national debt. That is not just more than the previous Labour Government borrowed; it is more than the borrowing of every post-war Labour Government added together. It is equivalent to £25,600 of extra debt for every household in the country.
Mr Philip Hammond
For clarification, will the right hon. Gentleman confirm that it is still his policy to borrow another £500 billion on top of that?
John McDonnell
That is interesting; I am pleased the Chancellor has raised that point. We have seen £700 billion borrowed over the last seven years as a result of economic failure. The Labour party’s policy, based on the recommendations of the CBI and others, is to spend £500 billion on investment over a decade. There would be £200 billion of mainstream direct funding and £100 billion would go to a national investment bank, which would prise from the private sector and elsewhere, on European Investment Bank rates, £250 billion. Such long-term investment in our economy has been recommended. Infrastructure investment is required to tackle the productivity crisis that has been caused by his Government.
John McDonnell
Don’t worry, Madam Deputy Speaker; I was enjoying that.
The reality is that this is Government investment, and those figures are just not acceptable. Investment of £5,000 per head in London compared with £400 in the north-east is an unacceptable level of inequality that has to be challenged. The right hon. Gentleman is usually fair, so I am sure that he would accept that, no matter how much we are both champions for our capital city.
While the shift in rhetoric is welcome, it must be backed up by meaningful action, and that is where the revised charter still falls short. It is good to see the Chancellor taking on board Labour’s recommendations and ditching the surplus target. In doing so, he has held out at least the possibility of lifting some of the burden of the austerity measures that have led to crises in health and social care. I deeply regret, however, that he failed to take that option at last year’s autumn statement. His failure to act on both NHS and social care funding has contributed to the worst funding crisis in the NHS for decades and a social care system pushed beyond breaking point.
An image can sometimes capture the plight of a particular situation. A couple of years ago, it was the image a child’s body on the shores of the Mediterranean that brought to our attention the plight of people in the refugee crisis. Last year it was that photo of a child in an ambulance, covered in blood and dust after being pulled out of the debris in Aleppo. Two weeks ago, the image that put the NHS crisis into focus for me was that of a child below the age of five, in a hospital corridor, being treated on two plastic chairs that had been pushed together. That is unacceptable in the sixth richest country in the world, and it is the result of a failure to address underfunding in the autumn statement.
I have written to the chair of the Office for Budget Responsibility to ask whether it will look into providing an assessment of healthcare funding against expected need. In the last month, the British Red Cross has described the ongoing situation as a “humanitarian crisis”. The Government’s response has been to play down the situation, despite the volume of continuing complaints from frontline NHS staff. I strongly believe that this is leading to widespread public distrust of the Government’s presentation of funding and support for the NHS and social care. It makes sense to attempt to provide an objective assessment of the real needs of the NHS to help to prevent the real-terms funding cuts that have taken place under this Government. Let me say to the Chancellor again that he can and must take action now to ensure that both health and social care are properly funded in this period of crisis.
I am afraid that the charter represents only the smallest improvement on the previous dire fiscal policy. Unbelievably and, I think, contrary to all advice, it still attempts to keep investment spending within the spending control framework. That has already been criticised by experts from the Institute for Fiscal Studies. Keeping the investment spending cap inside the overall spending cap means that every pound delivered for investment comes at the expense of possible spending on public services. At a time when the capital costs for the Government are close to their lowest in history, that choice makes little sense. As we face Brexit, the challenge for us all is to think boldly about how this country can respond, and the amended rule falls far short of that.
Mr Philip Hammond
What is the right hon. Gentleman’s position on public debt? Ours is set to peak at just over 90% of GDP, yet he is setting out a course of action that would cause it to rise indefinitely—it would go on rising forever. Is he comfortable with such a position?
John McDonnell
That is clearly not the case. If the Chancellor had looked carefully at Labour’s fiscal credibility rule—[Interruption]—and, indeed, adopted it, he would have seen that what we would actually be doing is reducing debt in the lifetime of a Parliament as a result of ensuring that we invest properly in tackling the productivity gap, in bringing people back to work and in ensuring that they have the highest skills. Those skills will produce the high wages that will make it possible to fund the economy through a tax regime that is fairer than the existing one.
It simply will not be possible to deliver the scale of support and investment that is needed to rebuild our economy within the strictures of the rules that the Chancellor is proposing. We will get half-measures and rhetorical commitments. What we will not get is a serious commitment to delivering the economic transformation that we now need, because that would require the Government to take on a few too many vested interests. Such a commitment would involve a serious attempt to clamp down on tax avoidance, reversing handouts to giant corporations and the super-rich, and ending—in reality, not just in rhetoric—the colossal imbalance in investment between a few favoured places in the south-east and the rest of the country.
In changing the rule, the Government are admitting their prior failure, but then failing to address its causes seriously. Investment is too low, productivity is too low and wages are too low. Labour’s own fiscal credibility rule follows the recommendations of world-leading economists, business organisations and trade unions by keeping day-to-day spending entirely separate from the Government’s plans to invest. In contrast, this Government’s fiscal rule is excessively tight on Government investment at the same time as being excessively loose on Government control.
The primary reason for introducing a rule is to show that a Government’s fiscal plans are consistent and planned well in advance. That allows businesses and investors themselves to plan, and reassures markets that a Government will not attempt to spend excessively. An ideal rule should be the basis of the strict enforcement of borrowing limits—we accept that—but it should also contain the flexibility for Governments to respond when unexpected shocks occur. Getting the balance between these two points is difficult so, following the best available economic advice, Labour’s fiscal credibility rule places the power to determine when we are outside normal times in the hands of the Monetary Policy Committee, which can declare under the terms of the fiscal rule that it is necessary for fiscal policy to adjust in response to an unanticipated shock. The freedom to determine the fiscal stance is a significant power for a Government, so it has to be used responsibly.
Labour does not believe that it is desirable to return to the days when Governments would produce their own economic forecasts and then decide on their own terms where the business cycle was and how much extra fiscal leeway they were allowed. That meant that the Treasury had excessive power to determine fiscal policy, and that in turn meant Governments would have the power to favour short-term quick fixes at the expense of longer-term action to rebuild the economy. A credible fiscal rule should not allow that to happen. It should be bolted into place, compelling a Government to act for the longer-term good.
Labour’s fiscal rule does that by handing power to recognise economic shocks over to the MPC, yet the new charter for budget responsibility appears to hand the power to recognise economic shocks straight back to the Treasury. It returns us to the bad old days when short-term Treasury thinking would be allowed to dominate economic policy making. It could mean that once again Conservative Chancellors would be tempted to ease off on or tighten up their spending not because of the economy, but because an election is due. In other words, it largely defeats the purpose of having a fiscal rule in the first place. Instead of breaking with the short-term thinking of the past, it bolts it more firmly into place. How can the rule be taken seriously when it is so obviously open to being undermined? In other words, the revised charter leads us dangerously close to the worst of both worlds. It is excessively tight on Government investment when building a post-Brexit economy should demand Government intervention, yet it is excessively loose on the Government themselves, handing too much power back to the Treasury.
The Chancellor and the Government are squandering an opportunity here. They could have ditched the failed existing fiscal rule and put in place a new fiscal mandate that would grant the space needed to rebuild and transform our economy as we prepare for Brexit. Instead, they have handed more powers back to the Treasury while the Chancellor has insisted on maintaining austerity spending cuts. No part of the Government’s new fiscal rule can be supported and we will be voting against the charter as a whole.
George Kerevan (East Lothian) (SNP)
I am somewhat in awe that you are back in your place, Mr Speaker.
The Chancellor was very measured in his defence of the new charter, and his presentation was without the usual gimmicks and flamboyance of his predecessor, and was none the worse for that, but I have read my Sherlock Holmes and it is the dog that did not bark in the night that we have to look out for. It is only 15 months since we last debated a new set of Treasury rules. I am in favour of such rules; rules are put in place to create stability and sustainability in the national finances, to give confidence to lenders, and to restrain politicians from using the public purse for party advantage. That said, it should be obvious to anyone that if this Conservative Government are bent on rewriting the fiscal rulebook only 15 months after the last time they did so, their motivation and seriousness are open to question.
The Chancellor did not address that serious point. If he keeps changing the rules, even though he stands up and makes a very measured defence of the new set of rules, he has to explain why he keeps changing them if he wants people to have confidence in the next set of rules, and the Chancellor patently failed to do that.
Mr Philip Hammond
Let me explain to the hon. Gentleman. We suffered an exogenous shock that, according to the OBR, implied an extra £84 billion of additional borrowing over the forecast horizon. I would say that when the facts change, we should change our plan.
George Kerevan
That is not what rules are for. The rules should not change when the situation changes; the policy should change. The rules are there to protect our sustainability and the ability of the markets to feel confidence in the Government. Yes, of course Brexit produced an exogenous shock, the full force of which has yet to arrive in the British economy. And, yes, the Chancellor is preparing the ground for when the wave hits the economy, but the point is that that is a policy issue. Why should the rules change? The rules are there to protect sustainability. If they change every time the circumstances change, what is the point of having rules?
George Kerevan
I thank the right hon. Gentleman for illustrating clearly the point that I am trying to make. Conservative Members are saying that rules are a hostage to fortune. They are saying that the rules will change when the circumstances change and when they need to change them to get the result they want. What, therefore, is the point of having rules at all? The right hon. Gentleman confirms the point that the shadow Chancellor and I are putting forward, which is that rules are flexible politically, and that they are therefore not rules.
We can prove this by looking at this Government’s borrowing record. Between 2010, when this Government were elected, and 2015, the national debt rose by 50%. The latest forecast from the Office for Budget Responsibility suggests that between 2010 and the end of this Parliament, the national debt will have almost doubled. The Conservative Government cannot continue to blame that on the former Labour Government. This Government have doubled the national debt during their tenure of office. The Chancellor and his predecessor have got away with that because they keep coming to the House with rules and pretending that they are fiscally responsible, yet they have doubled the national debt.
Mr Philip Hammond
We must remember the size of the deficit that we inherited in 2010. There would have been a way of avoiding doubling the national debt, but it would have involved an even harsher period of consolidation of the public finances. The hon. Gentleman’s party and the Opposition voted against every single measure to consolidate. The previous fiscal rules called for a surplus in 2020-21. The hon. Gentleman seems to be advocating a policy response that would squeeze the economy harder in order to meet the old rules in the new circumstances. Is that what he would like?
George Kerevan
I am glad that the Chancellor has now admitted that this Government will have doubled the national debt by the end of this Parliament; so much for their fiscal prudence. I am happy to admit that, yes, actually I was in favour of doubling the national debt. That does not give me a problem. In fact, I think that that is what saved the economy. What I cannot abide is the rank hypocrisy of a Government who keep coming up with rule after rule in order to pretend that they are fiscally prudent—
The Chief Secretary to the Treasury (Mr David Gauke)
What the British people want is a stable and successful economy—one that means jobs, opportunity and a high quality of life. That is what this Government are delivering, and what we will continue to deliver, because, unlike the Opposition parties, we are not ignoring economic realities, but facing up to them. We are not paying lip service to our responsibilities, but shouldering them, and we are not pretending that every problem can be solved by spending more, borrowing more or taxing more. We are restoring our public finances to health and investing sensibly and in a well-targeted way in the future success of this country.
That is how we have turned our economy around. Not only are we forecast to achieve faster growth than any other G7 economy last year, with near record employment and unemployment at its lowest rate in more than a decade, but, at the same time, we have made great progress on getting to grips with the public purse, cutting our deficit from its post-war high of 10.1% in 2010 to 4% last year, and borrowing £1 in every £10 we have spent, not the £1 in every £4 that we saw under the last Labour Government. As my right hon. Friend the Chancellor has pointed out, the recent fiscal sustainability report from the OBR reminds us of the action that we must continue to take to address our deficit.
The fiscal rules that we are looking at today strike the right balance for the challenges and opportunities that we face. They include a credible plan to return our public finances to balance; enough headroom to guard against economic shocks; and scope to invest in improving productivity. The structural deficit must be below 2% of GDP by the end of this Parliament, which sets the right course to ensure that the deficit is eliminated altogether next Parliament, and that debt will be falling by the end of this Parliament. The new medium-term welfare cap is an important component of the plan. A medium-term cap rather than an annual one allows us to ensure that we can control welfare spending without needing to make short-term changes to react to fluctuations in the forecast for spending.
To reiterate: the Government will deliver the overall total of welfare savings already identified, but we have no plans to introduce further welfare savings in this Parliament beyond those already announced. With welfare accounting for around a quarter of all our spending, the right course of action is not to refuse to consider any kind of control, but to ensure that our expenditure is stable and sustainable. We have already announced all the measures that we will take in this Parliament for savings in this area.
This then is a credible fiscal plan for three reasons: first, because it means tackling the deficit and bringing our public finances into balance, the importance of which continues to be completely overlooked by the Opposition party; secondly, because it sets feasible targets—in fact the OBR forecasts that we will meet our aims for this Parliament two years early—and, thirdly, because it also gives us the space to react to any short-term fluctuations in our economy in this period of adjustment. It also gives us the scope to address the long-term structural changes and invest in our future success. I refer specifically to the additional £23 billion that we will be investing in our national productivity—borrowing to fund improvements for businesses and families alike in our infrastructure, research and development and housing.
The charter enshrines our commitment to fiscal restraint. It reflects our refusal to allow public spending to sky rocket as it did under Labour; our determination not to put ourselves again in such a vulnerable position as Labour did in running up the largest structural deficit of any G7 country ahead of the great recession; our rejection of the reckless economics that the Labour party continues to favour, which is one of blank cheques, unfunded spending commitments and magic money trees. Is it not time that Labour finally started learning from its mistakes and caring about the economic security that the people of this country deserve? It clearly does not have a credible fiscal plan of its own. It clearly does not have much interest in the matter, because not a single Labour Back Bencher even attended this debate until the 67th minute of it. Let me invite them to join us in voting for a plan that is not only in the interests of working people today, but in the interests of their children and grandchildren who follow. I commend this charter to the House.
Question put.