Fiscal Rules

Debate between Darren Jones and Gareth Davies

Monday 28th October 2024 Commons Chamber

[Gareth Davies (Grantham and Bourne) (Con)]

I wondered whether the Chancellor’s announcement of changes to the fiscal rules would survive the weekend, given the five fictitious freeports that came and went. It was a cautionary tale about the uncertainty and confusion that can be created when policy is not announced in the proper way in Parliament. I welcome the delayed statement by the Chief Secretary to the Treasury, and I am grateful for advance sight of it.

Making a £50-billion announcement at an overseas conference, and not at a fiscal event in this House, has understandably and notably moved markets, creating further uncertainty for an already nervous business community. Although the Chancellor announced change last week, she did not provide any details about what that change would be—a common approach by Labour that is now coming back to bite them as the realities of government set in. The Prime Minister has admitted as much in recent days, speaking of the need to “embrace…fiscal reality” by adopting measures that were never listed in Labour’s manifesto. In fact, the Chancellor explicitly said before the election that she would not change the fiscal rules because that would be “to fiddle the figures”. By going ahead with this latest U-turn and broken promise, she has compromised trust and credibility ahead of her first Budget.

That joins the long list of promises already broken by the Labour Government in such a short time: the promise to cut energy bills by £300—broken; the promise that their manifesto was fully costed—broken; the promise to be on the side of pensioners—so obviously broken; and we know that their promise not to raise taxes on working people is about to be broken, too. Try as they might to sell a different story, just like Government bonds right now, people ain’t buying it.

We are left in the ludicrous position in which the UK—the sixth-largest economy in the world—does not have an operative definition of public debt. Quite understandably, markets have responded to this latest uncertainty by applying a premium to UK sovereign debt at a time when they have been discounting the sovereign debt of our international peers. The markets are also perplexed as to why these changes were announced without an accompanying OBR report. In the words of the Chancellor,

“Never have a Government borrowed so much and explained so little.”—[Official Report, 23 September 2022; Vol. 719, c. 941.]

The Government may think that this will all go unnoticed, and that most people do not know enough about the fiscal rules to know what is really going on here, but let me be very clear: the people will know about this. They will know it and feel it when interest rates stay higher for longer. Treasury advice to us was consistently clear: interest rates would stay higher if the rules were changed. What advice did Treasury officials give the Chief Secretary to the Treasury about the impact on interest rates? Does he agree with Paul Johnson of the Institute for Fiscal Studies, who said that the change will mean

“more debt, more debt interest”,

and that it is “no free lunch”?

Of course, we all want to see investment in our public services and infrastructure. We oversaw the largest ever increase in funding for the NHS, we increased defence spending to the highest levels since the cold war, and we attracted the second-greatest foreign direct investment in the world, but we sought that investment with a view to boosting productivity by investing in technology—that approach has now been scrapped by Labour—and spreading opportunity around this country through freeports and investment zones. This Labour Government are quick to spend but unwilling to explain.

Finally, on behalf of the British people, and the markets, which are watching this statement so very nervously, I ask the Chief Secretary to the Treasury: what definition of public debt is the UK offering to lenders today, and how much do the Government plan to borrow under an expanded definition? He will say that we have to wait for the Budget, but the Chancellor did not wait last week, so why should we?

[Darren Jones]

I am very fond of the hon. Gentleman, but he has some brass neck to stand up in this House and tell this Government how to behave after his party’s maladministration over the last 14 years. May I politely point out that he might be getting slightly ahead of himself? The Chancellor has not set out the detail of the fiscal rules in advance of the Budget; she will do it in this House, in the Budget on Wednesday, and I encourage him to wait for that information. He painted a picture of the country performing so well under his party’s leadership, but he may want to reflect on why he lost the last election so badly.