Economy: Deficit Reduction

Lord Barnett Excerpts

Thursday 15th December 2011 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government what evidence they have that their deficit reduction plan is working.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, tackling the deficit is necessary to supporting sustainable economic growth. The Government’s consolidation plan has restored confidence in the UK’s fiscal position, preserving our AAA credit rating and leading Standard & Poor’s to move the UK’s rating from negative outlook to stable. In May 2010, the spread of UK gilts to German bunds was in line with Italy and Spain; since then, UK rates have fallen by over 150 basis points but Italian and Spanish bond yields have risen by over 100 basis points.

[Lord Barnett]

In the midst of all that, the noble Lord forgot to answer the Question. As I am sure he will recall, the Prime Minister said that the deficit would be eliminated in 2015 and his own Office for Budget Responsibility has said that it will be 2017. Why was he not willing to say that? Is there something wrong in telling the truth that he has to give me a long, wordy Answer? However, it is even worse than that—and some very respected forecasters are forecasting that it could be even worse. Would he not accept that if the circumstances change, through no particular fault of the Government, changes in policy should take place? For example, we might do something to stop the unemployment figures announced yesterday being even worse. What does he have in mind in the event of some kind of major change in circumstances?

[Lord Sassoon]

My Lords, the Government are on track to meet the fiscal mandate which was set by my right honourable friend the Chancellor. The mandate requires the Government to bring the cyclically adjusted current balance into balance at the end of five years. The Opposition may not like it but that fiscal rule means that there is an ability for us to be flexible in the face of very difficult economic conditions; it means that we can preserve the infrastructure expenditure, which is so important, to underpin long-term growth; and it means that the automatic stabilisers can operate. If the noble Lord, Lord Barnett, is suggesting that we should abandon all of that, I wonder what his policy would be.