The Economy

Ed Davey Excerpts

Tuesday 6th December 2011 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

I do not think anyone doubts the serious economic challenges facing the UK, Europe and the wider world. The serious tone of today’s debate reflects that. So it is important in such a crucial debate that we can agree on the economic and financial figures and forecasts, not least because in the past, Parliament, commentators and the markets have questioned Governments’ forecasts. In the past, Governments jealously guarded control of the forecasts and used that control to tweak, fiddle and fix the figures. As we can read in the previous Chancellor’s memoirs, the pressure to fiddle the figures is never greater than in the tough times. By giving responsibility for forecasts to the Office for Budget Responsibility, this Government have changed all that. The OBR figures are independent; the OBR figures tell it straight; so these figures command respect. I challenge Labour Members to say so now if they do not accept the OBR’s figures.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

It is not a question of not accepting the integrity of the Office for Budget Responsibility. The question is the reliability of the figures stemming from the credibility of the organisation. Why does it get everything so wrong all the time? Is it not up to the job? Does it have a lack of expertise, or is it just that it is being asked to fix figures that have no meaning in the real world?

[Mr Davey]

Given that that comes from a former Treasury Minister in a Government who often got their figures wrong, I do not think that the OBR needs to listen to that. It is absolutely clear that the Labour party is taking the OBR’s figures seriously. It is significant that we can at last have a debate without the numbers being the issue—without the spin and the game playing that so debased the House’s deliberations in the past. The Labour party’s acceptance—grudging or otherwise—of our or the OBR’s forecasts presents Labour Members with a problem. Why do they not accept the underlying explanation of the OBR’s forecasts?

This House has heard that the OBR’s forecasts changed not because the Government’s policy has gone wrong, but because of three reasons outside this Government’s control: imported inflation, with higher oil and commodity prices; the huge uncertainty caused by problems in the eurozone; and, finally, the boom and bust that Labour once arrogantly told us they had abolished, which was worse under Labour than anyone had previously thought. The Labour party has to face up to this reality, yet the shadow Chancellor did not. This Government have, and have made the difficult choices in doing so.

Our strategy of loose monetary policy and fiscal consolidation, backed with some of the most ambitious supply-side reforms in generations, was not just right when we first announced it after the election; it is right now. Indeed, recent events have given even stronger confirmation that it is right. That is why, despite the changed forecast, our interest rates remain so low while countries all around us have seen their credit rating slashed, downgraded or put on negative watch. The markets have shown their confidence in the UK with the interest on our debt falling to historic lows.

In what was probably the most remarkable part of today’s debate, the shadow Chancellor was astonishingly dismissive of the low interest rates and our achievements. Never mind that Italy and Spain have seen their rates shoot above 6% while ours have fallen towards 2%; never mind the benefit to mortgage holders, businesses and taxpayers of that achievement. The shadow Chancellor seems to believe that the UK is in a liquidity trap—despite the fact that we have a credible central bank, despite the fact that quantitative easing has been judged effective and despite the major credit easing announced in the autumn statement. In the early 1930s, ahead of Keynesian rearmament, a monetary expansion with low rates combined with fiscal consolidation produced a significant recovery. Is that not the lesson from history that the shadow Chancellor simply has not learned?

Of course, we could have opted for another growth policy—some call it plan B—involving unfunded tax cuts, more borrowing and more spending. The details of that are never clear, but the consequences are higher interest rates. [Interruption.] Labour positions itself as the party of high interest rates, although a 1% rise in market interest rates adds £10 billion to mortgage bills—meaning that the average family with a mortgage will pay £1,000 more—and increases business rates by £7 billion and taxpayers’ costs by £21 billion. That would be the price of Labour government. [Interruption.]

I have looked around Europe for Governments or mainstream political parties that have opted for a policy such as plan B, but they are in short supply. Other Governments are now having to address their budget deficits—[Interruption.]

[Mr Speaker]

Order. Far too many private conversations are taking place in the Chamber. Let us hear the Minister.

[Mr Davey]

Other Governments, faced with rising interest rates on their debts, are now having to address their budget deficits. Often they are having to cut deeper than us. It is true that our deficit reduction, at 3.7% of GDP over the next four years, is the third highest in the G7. After all, in 2007 our structural deficit was the highest in the G7. Yet Italy is now making much deeper cuts, and France too is planning deeper cuts. Our deficit reduction is of course significantly less than that of Greece, Ireland, Portugal or Spain, so we will not be opting for plan B as suggested by the Labour party.

We heard many excellent speeches from Members in all parts of the House. I particularly commend those of my hon. Friend the Member for Chichester (Mr Tyrie) and of the hon. the Members for Skipton and Ripon (Julian Smith) and for Newton Abbot (Anne Marie Morris), all of whom referred to the importance of the supply-side reforms. The hon. Member for Skipton and Ripon mentioned the important employment law reforms which, I believe, will make a big difference to our efforts to return people to work, and the hon. Member for Newton Abbot spoke of the importance of ensuring that regulation was cut for micro-businesses. I can tell the hon. Lady that we are achieving that now, even at European level.

We also heard good speeches on the importance of infrastructure investment from the hon. Members for Folkestone and Hythe (Damian Collins), for Ochil and South Perthshire (Gordon Banks) and for Scunthorpe (Nic Dakin), and from the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling). The significance of the infrastructure plans that we announced in the autumn statement is that they are well advanced, and some are even shovel-ready, so the problems that the shadow Chancellor worried about do not pertain.

This was an important debate. For once, it was not about the figures in the economic forecasts and the Budget questions. Thanks to the innovation of the Office for Budget Responsibility, it focused largely on analysis—although at times the analysis presented by the shadow Chancellor was more theoretical than academic—and it sharpened the differences between the coalition and the Opposition. While the Government are focused on keeping interest rates low, Labour’s priority is to spend and borrow more. While this Government—

[Mr Alan Campbell (Tynemouth) (Lab)]

claimed to move the Closure (Standing Order No. 36).