Amendment of the Law

Clive Efford Excerpts

Thursday 22nd March 2012 Commons Chamber

[Vince Cable]

I think Mr Blanchard is very firmly on record as endorsing the strategy that we have adopted.

There is, of course, a fundamental dilemma, which any Government in this situation would face. If a deficit is cut very fast, it clearly has an impact on demand; and if it is cut too slowly, we lose the confidence of international creditors and markets. That is what we have not done. Unlike many eurozone countries that are now introducing budgets in panic and under pressure, we have introduced a politically and financially stable approach to deficit reduction. The underlying theme has to be one of financial discipline.

I cannot resist quoting an excellent statement of what this Government are about, and of what any Government should be about. It says that

“we must ensure we pass the test of fiscal credibility. If we don’t get this right, it doesn’t matter what we say about anything else.”

That was the shadow Chief Secretary, the hon. Member for Leeds West (Rachel Reeves). She is absolutely right and has brought fiscal rigour to the Opposition Front Bench for the first time. I just wonder what kind of response she has made privately to some of the commitments that the shadow Chancellor, and indeed the Leader of the Opposition, have been making in the last few weeks. They have been promising to get rid of the fuel duty changes, child benefit changes, child tax credit changes and the changes to public sector pay. I think the total volume of commitments is something in the order of £30 billion. Before we proceed any further with a debate on the Budget, we need to have absolute clarity about which of those measures the Opposition are committed to and to which they are not—and if they are committed, we need to know what else they are going to cut to make way for them.

Let me summarise where we as a Government are proceeding. Unlike many other countries in Europe, we have not introduced our Budget in an environment of panic or under pressure from financial markets. Unlike in the United States, we do not have political paralysis; we have stable government. This is our strategy: we have, and we will retain, fiscal discipline and we will stimulate the economy. There has to be demand—the shadow Chancellor is absolutely right about that—but this is coming through monetary policy. In order to have a monetary policy that stimulates the economy, we need the confidence of the central bank. The central bank has made it absolutely clear that the Government have to be fully committed to fiscal discipline in order to allow that to happen. Thus we have a combination of low interest rates, quantitative easing, now credit easing and a substantial devaluation. This is where the stimulus to demand comes from.

The third element is fundamental: we are dealing with a broken banking system—something we inherited. The banking system was massively expanded under the last Government, but collapsed with disastrous consequences. There is a continuing problem of credit supply. That is a very real problem—and every small and medium-sized enterprise would tell the same story. We have introduced a whole series of initiatives. The Chancellor has taken this forward with credit easing, while my Department has a new programme building on the Breeden report relating to non-bank finance. I have no doubt that we shall have to come back to this, because the banking system is still not functioning, but this is at the heart of the economic crisis that we are trying to manage. For the first time in our lifetimes, the financial system has collapsed—with disastrous consequences—and we are having to put that right.

The fourth and final element in the story is rebalancing the economy and putting it on a proper sustainable basis. That is why the Chancellor underlined in the Budget our commitment to the growth review and to improving infrastructure. We need to recognise that banks have to be properly regulated, which is why we have increased the bank levy, but in addition, we need to give backing to our successful industries, particularly our export industries—aerospace, creative industries, the oil and gas sector, and pharmaceuticals. Over the last few weeks and months, we have been correcting some of the long-standing errors of policy pursued by the Labour Government—the way in which, for example, public procurement took no account of supply chains; we are putting that right. We are beginning to see serious positive commitment by overseas investors—we are seeing it in the car industry and in pharmaceuticals—as a result of this industrial strategy.

[Clive Efford (Eltham) (Lab)]

With all due respect, we have heard it all before. In May last year, the Business Secretary said:

“I will fight, and do fight…for manufacturing industry…It is leading this country out of recession”.—[Official Report, 24 May 2011; Vol. 528, c. 793.]

Will he tell us what went wrong with manufacturing?

[Vince Cable]

Has the hon. Gentleman followed what is happening? The car industry, for example, has grown by approximately 20% over the last year, and all the major producers are investing in the UK.