Charter for Budget Responsibility

Debate between Angus Brendan MacNeil and Ed Balls

Tuesday 13th January 2015 Commons Chamber

[Ed Balls]

I will give way in a second, but let me first explain this point to the former Chancellor.

Even as recently as the March Budget, the OBR made a forecast for growth and for tax revenues. Between the Budget and the autumn statement it revised the growth forecast up by a little bit, but revised income tax and national insurance substantially down because, owing to this year’s stagnating wages and cost of living crisis, growth has not brought in the revenues that the Chancellor wanted. In comparison with the March Budget, we have actually lost £8.4 billion in this fiscal year, not because spending cuts have not gone ahead or tax cuts have not been delivered, but because the tax revenues have not come in as a result of growth and stagnant wages. Ultimately, the only way of reversing the problem is yes, to cut spending, and yes, to raise taxes—as the Chancellor has done in this Parliament—but also to get the economy growing in a stronger way which will bring in tax revenues. If he does not do that, the Chancellor will carry on failing year after year, as he has in this Parliament.

[Mr MacNeil]

The right hon. Gentleman has said that he supports this motion on austerity. Tonight he will walk through the Lobby hand in hand with the Tories. Will he tell us how the Labour party differs from the Tory party?

[Ed Balls]

I will explain the nature of the fiscal charter and how it works in a moment. I am sure that the hon. Gentleman will then see the stark difference between our position and the position of the Conservatives. He will probably find that he agrees much more with our position than with theirs.

--- Later in debate ---

[Ed Balls]

I will do so. Let me just say, for the interest of the former Chancellor, because it was not like this in his day or when I was in the Treasury, that our trend rate of growth in 2014—1.17%—puts us 19th out of 34 countries in the OECD. We have a lower underlying trend than Chile, Israel, South Korea, Australia, Mexico and Poland—and the list goes on. The right hon. and learned Gentleman is completely right: we have to find a way to strengthen the underlying growth of the economy.

Let me come on to Labour’s position. We will cut the deficit every year. We will get the current budget into surplus. We will get the national debt falling as soon as possible in the next Parliament, fully consistent with this fiscal charter. How fast we can do this will depend on what happens to growth, wages, the housing benefit bill and events around the world. But our approach will be very different from that of the Conservatives, on the following fronts. We believe, unlike the one-club Chancellor, that three different things need to be done to properly and fairly balance the books in the next Parliament.

First, as we have said, because we will cut the deficit every year, there will be sensible spending cuts in non-protected areas. We will cut the winter allowance, taking it away from the richest 5% of pensioners. We will cap child benefit at 1% for two years, and our zero-based review is examining every pound the Government spend in order to find savings. Secondly, we will make different and fairer choices, including reversing this Government’s £3 billion-a-year top-rate tax cut for people earning more than £150,000. Thirdly, our plan will deliver the rising living standards and stronger—

[Mr MacNeil]

Will the right hon. Gentleman give way?

[Ed Balls]

No. Our plan will deliver the rising living standards and stronger growth needed to balance the books: We will have more free child care, paid for by the bank levy; we will properly capitalise the business investment bank; we will raise the national minimum wage faster than wages; we will repeat the bank bonus tax to get young people back to work; we will devolve full growth in business rates to city and county regions; and we will get the houses built that we need—200,000 a year more by 2020. That is all part of a proper long-term plan for growth and jobs.

The OBR figures show that if our economy was not to slow down next year, the year after and the year after that but instead grew 0.5% faster, that cumulatively would bring in £32 billion in the next Parliament. If we could increase the underlying trend rate of growth in the next Parliament by 0.25%, that would mean £19 billion a year more in tax revenues by the end of the Parliament. This is not only about tax rises and spending cuts; it is also about growth, jobs and the underlying trend. This Chancellor has seen growth downgraded—we have got to do a better job. Unless we do that, we will not see the books balanced in the next Parliament. So that is what we mean by an economy that works for working people and a tough, fair and balanced plan to get the deficit down.