Budget Deficit

Lord Sassoon Excerpts

Wednesday 15th February 2012 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what assumptions they are currently using about what the scale of the deficit will be on 31 March 2012, and how this compares to what had been predicted by the Office for Budget Responsibility at the time of the last budget.

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

My Lords, the Office for Budget Responsibility published its most recent forecast on 29 November 2011. Its forecast for public sector net borrowing in 2011-12 is £127 billion. This represented an increase of £5 billion since the forecast produced for Budget 2011. The OBR attributed the worse economic outlook to three factors: the sharp increase in global commodity prices over 2010 and 2011; the impact of the euro area crisis; and the ongoing structural impact of the financial crisis.

[Lord Barnett]

Actually, my Lords, I knew that. My Question was about assumptions in the Treasury; surely its officials cannot sit there twiddling their thumbs twice a year waiting for the OBR forecast. Is not the major problem that the Chancellor has concentrated to such a degree on the deficit that he has lost track of where that is taking him? The plain fact is that it is a lack of growth that is doing the damage. Now, as we know, the Chancellor has had to extend the balancing of the budget to 2017, and he may well have to extend that further. Many of the Chancellor’s friends who supported him, like the IMF and the OECD, are now saying that if the position deteriorates, as it is clearly doing, then he should be more flexible. Would he consider, for example, something that would help in the short term—namely, finding the odd few billion, which would not be very much in relation to the total deficit, in order to kick-start the privately funded infrastructure plans that he has spoken about previously? Would that not at least help to alleviate some of the problems?

[Lord Sassoon]

My Lords, I shall try to deal with at least some of the noble Lord’s supplementary questions. First, there is a process of exchanging and discussing numbers between the OBR and the Treasury under the memorandum of understanding. The details of all communications between the OBR and Ministers will be published in due course on the OBR’s website, as they were in the run-up to last year’s Budget.

Secondly, on the question of the deficit reduction plan, it is interesting to look at the recent IFS green budget, which does a comparison between the coalition plans and the relatively sober Alistair Darling plans rather than the Ed Balls plans. The comparison shows that up to 2016-17 the cumulative impact of Mr Darling’s policy would have been that debt under a Labour Government was £201 billion higher than it will be under the forecast for the coalition Government. As the markets have made clear this week, if we listened to suggestions about making increased spending commitments now, our interest rates would go sky high and our industry would be crippled. We are sticking to our plans, but the private sector will contribute to significant infrastructure investment of the sort that both the noble Lord, Lord Barnett, and I would welcome.

[Lord Lawson of Blaby]

My Lords, is it not the case that the noble Lord, Lord Barnett, despite his great experience, needs even at his age to learn a little patience? Is it not the case that if there were some short cut to resuming growth, the Government would take it?

[Lord Sassoon]

My Lords, it is indeed the case. If my noble friend had such a short cut, I am sure he would have told the House what it was.

[Lord Soley]

Is the Minister not missing the key answer, which he keeps ducking? The Chancellor has frequently said that the debt burden must be reduced and the Government will reduce it quickly. It is actually increasing. The economy contracted by 0.2 per cent in the previous quarter and will go on reducing for the foreseeable future. What has gone wrong? Never mind what other people say, what has gone wrong with the Government’s plans?

[Lord Sassoon]

My Lords, economic growth has been weaker for reasons that include, particularly at the moment, the ongoing eurozone crisis. Inflation has been high but is now coming down significantly from its peak last September. In those circumstances, the automatic stabilisers apply and expenditure goes up. However, we are getting two very different messages from the party opposite, one implicitly urging faster consolidation and the other asking for more expenditure. Which is it to be? This Government will get borrowing down by £147 billion a year by 2016-17. That is what is important.

[Lord Newby]

My Lords, on Monday, Moody’s said that the UK’s triple A rating could be downgraded by,

“reduced political commitment to fiscal consolidation, including discretionary fiscal loosening”.

Does the Minister have any idea what Moody’s might have had in mind?

[Lord Sassoon]

My noble friend probably thinks that Moody’s have in mind what I have in mind: the policies of Mr Ed Balls. However, the chances of those being implemented are, fortunately, small. Only yesterday, a respected City broker from BGC Partners said:

“Ed Balls can whinge all he likes but you only have to look at a compendium of 10 year bond yields to know that the UK Chancellor, George Osborne is on the right track. For the Chancellor to take his foot off the gas in terms of cutting the debt reduction would be insanity personified!”.

[Lord Davies of Oldham]

My Lords, when it comes to whingeing the Government take first prize. They spend their time blaming either the previous Government or external forces. When will they take responsibility for the fact that they promised to encourage growth and have failed to do so, and promised to reduce the deficit and are failing on that? How much must the British people suffer before the Government change their policy?

[Lord Sassoon]

My Lords, these are very difficult economic circumstances, in this country and globally. However, to give one example of where growth policies are coming through, there are 60,000 more people in employment than there were one quarter ago. That takes the total number in employment in this country to 29.13 million—a rise of more than 250,000 in the past 18 months. We must not play down the strength of the private sector in the UK economy.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend confirm that the reason why we have a problem with growth is the huge level of public expenditure that the previous Government incurred at the height of the boom? Will he give the noble Lord a reality check and tell us how much more than our income we are spending this year, and by how much the debt will have increased by the end of this Parliament?

[Lord Sassoon]

I completely agree with my noble friend. The point is that we will balance the books only because doing so over the five-year period is a prudent way of doing it. By that point the debt will also have started to come down. That is the way that the Government will continue to do it.

[Lord Peston]

The noble Lord told us all to be patient. I remind him that the great economist Lord Keynes said:

“In the long run we are all dead”.

Is the Government’s problem not that, having created this air of disaster for the country, no one in the private sector believes that the economy will get going and, therefore, no one has any intention whatever of investing in new equipment while the Government’s policies are in place?

[Lord Sassoon]

No, my Lords, I do not accept that at all. The only disaster is the mountain of debt—the structural position—left by the previous Government. As I have explained, the signs from the private sector, whether rising exports or rising total employment in the economy, are very encouraging. It is very difficult but we have to do everything we can, including keeping interest rates low, to make business confident enough to invest for the future.