Charter for Budget Responsibility

Debate between George Kerevan and Michael Fabricant

Tuesday 24th January 2017 Commons Chamber

[George Kerevan]

Not if we take into account the fact that if inflation starts to rise, the Bank of England, as the hon. Gentleman knows, has decided to let that inflation flow through the economy. The Bank explains that inflation in terms of the falling pound, and it is going to let inflation rise to about 3%, the top of its current forecast range. The Bank thinks that inflation will then start to decline again, but others, such as the Federation of Small Businesses, think that inflation will go above that core forecast. We could be looking at 5% inflation in two years’ time, which would have a crippling effect. [Interruption.]

The Chancellor shakes his head. All I am doing is quoting the Federation of Small Businesses, which is not an irresponsible organisation. It thinks that the Bank of England’s core forecast—taking us up to 3% against the consumer prices index—will actually be exceeded, which is a strong possibility. If we go beyond 3% inflation and head up to 5%—and remember that the Bank of England said that it will not raise interest rates to combat such a rise in inflation—consumer spending will start to fall.

In reply to the question I was asked by the hon. Member for Horsham (Jeremy Quin), my argument is that if consumer spending tanks, we are in a hard Brexit, foreign investment is falling and firms are reluctant to conduct business investment, the only agency left to plug the gap is the Government. I am pointing out that the Chancellor, rather than waiting for that to happen, beyond which point it would take two or three years for the fiscal policy to kick in, should be doing it now. That is the basic point that I am trying to make.

[Michael Fabricant]

I am listening to the hon. Gentleman with great interest and I like his debating style—it reminds me of an old professor I had at university—but has he not just contradicted himself? Early on, he said that he does not see the need for any change, although we are changing the rules, and then he gave us a nightmare scenario of the future because of Brexit and said we do need change. He has to make up his mind.

[George Kerevan]

I am very clear. I do not say that the rules should be changed, because I do not like the original rules and I do not like the rules that are being proposed. I do believe in the principle that there should be fiscal rules; there should be a fiscal mandate to restrain a Government. So my primary point, to begin with, was that if we keep changing the rules that mandate does not exist, and this Government only pay lip service to them.

Under my set of rules—I do not have the time tonight to go substantially into them and I will not press the patience of the Speaker—there would be a restraint on current expenditure, although I am more liberal when it comes to capital expenditure, which, provided it is linked to trend growth, can be counter-cyclical. We can go into that another time. It does not matter what the present rules are. The fact that the Government keep changing them is the point at issue, which is why the charter is not worth the paper it is written on—they will change it in a few months anyway. They say that is their general principle.

Let me try to come to some conclusions. Back in 1956, Harold Macmillan gave his one and only Budget speech as Chancellor. What was the ratio of the national debt to GDP? It was 150%—almost double what it is today. I read that speech the other day; I forbear to read it out, but it quoted Macaulay. Macmillan read out half of one of Macaulay’s essays—we had quite sophisticated Chancellors in those days, Mr Speaker.

Macmillan went through practically every Administration since the 1600s. In every Administration, somebody got up and complained about the level of the national debt. Macmillan’s was an expansionary Budget, let me say, with a debt to GDP ratio of 150%. Macmillan, having worked his way through Macaulay, made the point that when we look back we see the benefits of that borrowing and investment, but when we look forward all we see is the dangers. Macmillan said that the trouble is, that stops us being bold.

I would like this Chancellor to be bold. I would like him to spend more money. I would like him to spend the money before the Brexit recession hits, rather than wait until it happens and then say, “Well, I have some weapons in the armoury to deal with it.” Let us deal with the problem before it happens. That is my point.