Amendment of the Law

David Ruffley Excerpts

Monday 28th March 2011 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

The business of the Government is not the government of business. The growth that this country needs, which will provide jobs and higher living standards for all our citizens, is generated by businesses, not by the Government. This Budget takes a modest step towards setting enterprise free in this country. I welcome these measures, but I also wish to sound a note of caution.

I want to talk first about the fiscal squeeze and the way in which inflation is squeezing Britain’s businesses. The Chancellor of the Exchequer is rightly lionised for being the deficit reducer of the western world. Contrary to what the Opposition might think, we do have the biggest peacetime borrowing requirement in the history of this country, and national debt was doubled under the Labour Government. It is also the case that £120 million a day is being spent on debt interest, which is more than we are spending on schools, the armed forces, criminal justice and police. Those are the facts.

The Chancellor’s rules are clearly correct, and he is setting about implementing them with real purpose and due ruthlessness to eliminate the structural deficit in five years, and thereafter to ensure that debt as a share of national income falls. The Chancellor’s excellent fiscal policy is in safe hands but, sadly, monetary policy is not. The good work done by the Budget will be threatened by monetary policy. We all know that the Bank of England has let inflation out of the box. It has lost control of inflation. Consumer prices index inflation is now 4.4%, and retail prices index inflation, which many people feel is a truer measure of the cost of living, is now 5.5%. Too many letters have been sent to the Chancellor by the Governor of the Bank of England explaining why, yet again, he and the Monetary Policy Committee have missed the inflation target.

Our higher-than-expected inflation has had the following consequences. Our debt interest payments are £4.6 billion higher than forecast in November for the simple reason that inflation has fed through to gilts, one third of which are index linked. We have also seen increases in the spending totals for social security and public sector pensions. This has led to an overshoot in the public sector borrowing figure, not for this year but for next year, of £4 billion. For 2012, there will be an overshoot of between £10 billion and £12 billion on the borrowing numbers that we forecast last autumn.

Higher inflation has another pernicious consequence. It will make cuts in public spending deeper, assuming that the Chancellor sticks to his cash totals, which I have every confidence he will. The Office for Budget Responsibility has forecast that average earnings will not grow faster than inflation until 2013, but the real worry in the OBR report is that inflation will not be tamed, and that the Bank of England does not tighten monetary policy in such a way as to get inflation under control. The report sets out a very gloomy scenario. It is that, in 2012-13, inflation could be stubbornly trading at around 4%. In those circumstances, real earnings would need to tick up. They will tick up, and there will be upward pressure at that stage for the Bank to jack up interest rates. According to the OBR’s gloomy scenario, it could be as bad as having a 6% base rate by 2013. That would result in the mother of all squeezes—much worse than the one we are already contemplating. That is why I suggest that, when we look at the macro-economy, we pay more attention to what the Monetary Policy Committee is doing. It is the duty of this House to scrutinise exactly how the committee is ensuring that monetary policy works together with, and supports, fiscal policy. At the moment, it is not doing so.

Because of the pressure on living standards, I am particularly pleased that the Chancellor has decided to lighten the burden on ordinary hard-working families. Taking 1p a litre off fuel duty, abolishing the escalator and introducing a fair fuel stabiliser are at least a nod towards helping household finances and giving some stability to the cost of fuel for each household. By 2012-13, the allowances for income tax will rise so that the average cash gain will be in the region of £326 a year for every working household. Those measures will take 106,000 people out of tax in the east of England, and they will benefit more than 2 million in the region. There is also the council tax freeze, which will be worth about £72 for a band D property.

We seem to have made a sensible start on unleashing the forces of enterprise in this country, but it is my contention that we need to keep a watch on inflation. We need more deregulation, and quickly, and we will also need deeper tax cuts when the economy can afford them.