Charter for Budget Responsibility

Charlie Elphicke Excerpts

Tuesday 13th January 2015 Commons Chamber

[Mr Osborne]

The British economy has grown faster than any major European economy over the last four years. It has created 1.7 million new jobs and 750,000 new businesses, and today the Governor of the Bank of England described it as being in a “sweet spot”, but Labour opposed every difficult decision we took to do that. It opposed every spending cut and welfare change. It goes around the country pretending it would reverse these things. It has made £20 billion of unfunded spending commitments. Every day in this Chamber, Labour Members ask for more public money to be spent on more things and complain about the difficult decisions we have taken. It is a totally incredible position from the Labour party and it is being exposed today.

[Charlie Elphicke (Dover) (Con)]

Is it not obvious that the Labour party is stuck in the past, talking about things done years ago and frightened to talk about the future? Did the Chancellor hear Paul Johnson from the Institute for Fiscal Studies say on the “Today” programme that borrowing would be higher under a Labour Government and that debt would be higher in the long run? The IFS says it; the Labour party ought to admit it.

[Mr Osborne]

My hon. Friend is absolutely right. The IFS today confirmed that Labour would borrow £170 billion more. This is its published plan. It is extraordinary that Labour Members are totally silent about it. They are not prepared to talk to the British people about what I assume they believe to be the right economic policy for the country.

I want to make sense of this strange journey that the Labour party has taken on fiscal policy over this Parliament. After all the twists and turns, I think it has managed to end up in exactly the same place as it started. In 2010, as part of his pitch for the Labour leadership—we thought at the time he was a worse choice than the current leader, but given all that has happened, perhaps we were wrong—the shadow Chancellor said we should not be cutting spending. He said that more spending would grow the economy and that the economic growth would eliminate the deficit. That was the position he set out in his Bloomberg speech—his so-called plan B. The problem was it was rejected by the British public and eventually by the Labour party. So two years ago, Labour changed its approach and committed to the original phrase of “iron discipline”. The only problem was there was no iron discipline and instead it made all those spending commitments. Last autumn, it moved on to another approach—the Basil Fawlty approach—which was not to mention the deficit at all. I think the House can agree that the Labour leader executed that strategy brilliantly at the Labour party conference.

In December, at the end of last year, Labour tried something else. The shadow Chancellor announced that he would seek to balance the current budget and get debt falling, but he would not say when, saying just as soon as possible. When pressed on specific dates, he dismissed them; he said he would not sign up to some arbitrary timetable. When challenged specifically to match our plans, he said a month ago, on 11 December, that he was not going to set a timetable to balance the current budget by 2017. Here he is, one month later, saying that he is going to vote in favour of a timetable to balance the current budget by 2017-18.

I thought that was the end of Labour’s journey. They had ended up supporting a charter that they had previously rejected, a timetable to which they had previously refused to sign up and £30 billion of cuts they had previously denounced. Then, this weekend, we were treated to the spectacle on “The Andrew Marr Show” of the Labour leader dismissing the charter altogether, rejecting the £30 billion figure and returning full circle to where the Labour party started four years ago. This is what the Labour leader said on Sunday:

“if we just try and cut our way to getting rid of this deficit, it won’t work.”

That is the latest version of the Labour party’s policy. It is exactly where they were four years ago. The Labour leader has gone full circle and gone back to saying that the answer to our debts is simply to grow the economy. That is economically illiterate when we have a structural deficit, and it is based on the fiddle of trying to upgrade the country’s trend growth rates—exactly the mistake made by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he was Chancellor and got us into this mess. Labour has gone from plan B to plan A to no plan at all.

--- Later in debate ---

[Stewart Hosie]

That is absolutely right. I will answer that question directly. Instead of the provisions in the charter, we should be tackling the deficit reduction and the debt reduction in a different way. It should not be a fixed-term approach; it should be a principles-based approach based on the medium term. It has been proven to work in New Zealand, and I want to refer to the way in which it goes about that. It says that the first principle should be about reducing debt to a prudent level, where the Government of the day specify what is or is not prudent, depending on the circumstances that they face—precisely the point that my hon. Friend made. The second principle should be that once debt is reduced, the Government should maintain a balanced budget over the medium to long term. That would not prevent any Government from implementing the steps they believe are necessary to achieve the long-term objective of having a prudent level of deficit, but it would mean that it would happen, on average, over the medium to long term, rather than arbitrarily specifying one cycle or one Parliament.

The third principle says that the Government should achieve and maintain a level of net worth that provides a buffer against unforeseen future factors. The fourth principle calls on the Government to manage fiscal risks prudently, and the fifth is that the Government must pursue policies consistent with a reasonable degree of predictability about the level and stability of tax rates. That is incredibly important, because the tax system, tax rates and tax certainty, which have not yet been mentioned today, are a vital component of fiscal stability and fiscal responsibility. In the sense that we have seen tax yields reduce, it is all the more important to get that bit right.

[Charlie Elphicke (Dover) (Con)]

The hon. Gentleman talks about fiscal stability and fiscal responsibility, but let me take him to task on the plans the SNP made, based on the price of oil, and what has happened to the price of oil. Does that not show that what the SNP has to say on these matters is not worth listening to?

[Stewart Hosie]

That is a ridiculous argument. If one thinks that those oil revenues, which are most certainly falling, are causing a big hit to the UK tax yield, all the more reason, one would have thought, to allow a degree of flexibility in the economic plan so that the overall strategy of deficit consolidation and debt reduction is achieved, rather than the facile political comment from the hon. Member for Dover (Charlie Elphicke).

Before I move to the second and third criticisms of the plan, on the overall plan for deficit consolidation and our opposition to it being on a fixed-term basis, when the New Zealand finance committee looked at alternative models—rigid, straitjacketed models—it made a number of interesting observations. The committee said that there was no solid theoretical justification for any particular fiscal target to be maintained over a period of time, and that judgments on the appropriate level of fiscal aggregates vary over time and depend on the prevailing economic circumstances. A fixed-term target with a fixed objective cannot do that.

Having looked at other countries, the committee said that their experience of legislated targets suggests that there are substantial risks attached to their use. In particular, rigid adherence can seriously distort decision making and, unless carefully handled, minor variations from target can result in significant but unnecessary damage to credibility. The committee went on to observe, in the context of the inherent inflexibility of a fixed target system, that it

“makes it difficult for fiscal policy to respond appropriately to the inevitable volatility of economic circumstances.”

Given that we have seen, and hon. Members have commented on, the eurozone crisis, the Cyprus banking crisis, the Irish bank bail-out and other issues, to put this country back into a straitjacket of a policy which has failed so far, ignoring the possibility that similar shocks could occur in the near and medium-term future, is silly and wilful. It is most certainly a political dividing line which we will not support.

Apart from its inherent inflexibility, our second criticism of the measure is that it sets in concrete a further attack on welfare budgets. With 22% of Scottish children, 11% of Scottish pensioners and 21% of working age adults in poverty, to launch a further attack on welfare at this time under the guise of amending the charter for budget responsibility is simply wrong. Thirdly, to set out a plan for future discretionary consolidation, on which the charter is predicated, which changes the ratio of cuts to tax rises from 4:1 to 9:1 to try, in effect, to balance the books on the backs of the poor is completely wrong.

We do not believe that anyone genuinely opposed to austerity could support the measure tonight. We do not believe that anyone who is genuinely opposed to the draconian changes to welfare can support this Government tonight. We do not believe that anyone who is opposed to trying to balance the books on the backs of the poor and take public spending levels back to those of the 1930s can support this Government tonight. My right hon. and hon. Friends and I will oppose the measure tonight.