Budget Resolutions and Economic Situation

Debate between John Healey and John Redwood

Wednesday 18th March 2015 Commons Chamber

[John Healey]

There are not many Members opposite, as the hon. Gentleman says. [Interruption.] He will remember, however, that after 10 years of the last Labour Government, before the global financial crisis and recession hit, borrowing and debt were lower than when we entered office. We have a deficit to deal with because of how the Government intervened to pull the country through that deep recession, to keep people in their homes and jobs and to keep firms in business. Of course there is a deficit, and of course it needs to be dealt with. The difference between the parties is that we will deal with it in a more balanced way. There is a choice. We can do it with tax rises that are fair, spending cuts and efficiencies. We will do what we need to do in a more balanced way.

[Mr Redwood]

Is it not the case that the most significant change after 2008 was the plan, which Labour backed and which the coalition continued with for its first two years, of taking the RBS balance sheet down from £2.2 trillion to £1.5 trillion? Was that not what provided the mighty shock to the British economy? It was something that Labour wanted to do.

[John Healey]

The intervention in the collapsed and failing banking system was a necessary step that the last Labour Government took with support from others, and most of the RBS and other bank intervention is dealt with differently in the national accounts. I would have thought that the right hon. Gentleman would have realised that.

--- Later in debate ---

[Mr Redwood]

I have no fixation on inflation, but neither do I think that runaway inflation creates prosperity. It is necessary to manage inflation, and to manage growth, and to have an economy that can expand. I am very pleased that this Budget helps to create and preserve the expansion that is now under way in the United Kingdom. I think it is good news that it contains measures to promote more home ownership and saving, and I think it is good news that it contains measures that will help enterprise and business to promote more jobs, because what we want are more jobs and better-paid jobs.

I was pleased to hear the Chancellor say that most jobs now are full time, and that many are highly skilled. That is what the country needs: more skills, more opportunity, and the chance for individuals to train, work and educate themselves well so that they can get better-paid jobs. That is what we all want in the House. It is sometimes suggested that the Conservatives do not want it, and I find that regrettable. We want it as much as anyone else. We want more jobs, better-paid jobs, and more skilled jobs. We know that we have to earn our money, and we want to create opportunities for people to earn theirs.

The Budget contains some sensible judgments on how much the country can afford in increased public spending. I think that £60 billion is a perfectly good judgment of the amount of extra public spending that will be possible by the end of the next Parliament. It also contains a judgment on how we can finally get rid of the deficit and start to cut the debt. I find it a bit odd that Labour has been telling us that too much was cut in this Parliament, and is now saying that the deficit is too high. I have news for Labour. You have to cut if you want to lower a deficit; it does not just magic away. The question is, how do you get that judgment right?

[John Healey]

It is possible to deal with a deficit simply by cutting, which is largely what the right hon. Gentleman’s party has done, but it is also possible to deal with it in a more balanced way by cutting where cutting is needed, raising revenue where it is right to do so, and ensuring that there is enough growth to bring in the revenue. That was the fundamental problem with the policies that existed at the beginning of the current Parliament.

[Mr Redwood]

The right hon. Gentleman has just described the policy of this Government. They put some taxes up, they went for growth—which is now coming through, and is helping to tackle the deficit problem—and they reduced the over-optimistic spending plans of the outgoing Government.

We have been told that it was wrong to cut capital spending. Well, I seem to recall that the only bit of spending that the Labour Government cut in detail before leaving office was the capital budget. They made massive cuts in capital. The Chancellor has restored some of those cuts, but because of the parlous state of the overall finances, he could not restore all of them.

The Budget presents a good package. There is good news on home ownership, good news on employment and good news on growth. A great many myths need to be put back into the dark room, because they are not going to con the British public.

Budget Resolutions and Economic Situation

Debate between John Healey and John Redwood

Wednesday 20th March 2013 Commons Chamber

[John Healey]

I have to say to my hon. Friend that there is sometimes a case for changing the historical land use, but that is a decision that very much needs to be taken locally. It will certainly not work if it is dictated by the Department for Communities and Local Government.

To deal with a deficit, which is what we face—whether it be for a country or a family—we must control spending, as the Chancellor said, but if we cut income at the same time, that makes it much harder to close that gap. That is why growth is so vital to a proper balanced plan for the country’s finances. That is why the Chancellor is now further from his fiscal targets than he was before the Budget.

The Prime Minister has tried to claim that the depressed growth has nothing to do with the Government. The independent Office for Budget Responsibility, he told us, is

“absolutely clear that the deficit reduction plan is not responsible; in fact, quite the opposite.”

Next day, a letter from the chairman of the OBR indeed confirmed the opposite, saying

“for the avoidance of doubt”

that the OBR operates

“the widely held assumption that tax increases and spending cuts reduce economic growth.”

In other words, the Chancellor has cut too far, too fast, killed the recovery and choked off growth.

There is good reason to believe that the OBR has underestimated and is underestimating the impact of fiscal policy on growth—the fiscal multipliers. Its estimates to date have been based on the International Monetary Fund figures, which estimate a 0.5% fiscal multiplier, 0.3% for changes in personal taxation and 1% for infrastructure and capital spending. The IMF has recently changed its estimates—up from 0.5% to a range between 0.9% and 1.7%. In other words, the impact of fiscal policy, the potential of the fiscal multiplier and of Government action and Government investment might be much greater than we have been led to believe.

At a time when consumer and business confidence is rock bottom and companies and households are cutting back and not spending, the Government must be ready to do more. They must be ready to invest alongside the private sector and they must, yes, be ready to borrow to help the country through tough times. Borrowing is bad when the repayments are not affordable or if it is done to cover day-to-day spending or indeed a shortfall between income and expenditure. That is why the Government’s planned borrowing bill has been ballooning, but borrowing can be good. It is good if it is for investment to improve infrastructure or the productive capacity of the economy or if it is to create jobs, revive growth and generate the tax revenue that is so sorely lacking.

Companies would borrow to take advantage of an opportunity to increase their earnings and profitability. Companies would never say, “We can borrow to invest only if we can cover the cost entirely by cutting the cost of our operations.” Households would do the same thing if, for example, borrowing to buy a car meant that it was possible to take up better-paid work, or if taking out a mortgage was cheaper than paying a private rent. In those circumstances, households would be daft not to borrow.

[Mr Redwood]

Given that this Government are planning to borrow £120 billion a year for each of three years, or £10 billion a month, how much extra does the right hon. Gentleman think it would be a good idea to add to that amount?

[John Healey]

There is an interesting example of a proposal, which I have backed, to allow local government to borrow more by removing the cap from the newly localised housing revenue account. We have heard about families borrowing prudently, but local government does borrow prudently, as its average level of debt is less than 5%. The Chancellor told us that the national Government’s net debt is 75%. We are talking about £7 billion, loosening the cap, and 15,000 new council homes—not just for this year, as the Chancellor has announced, but every year for the next five years. That is the sort of borrowing we could do to invest, to promote jobs, to promote growth and to bring in tax revenues, helping to deal with the deficit in a proper and balanced way.

If we want to move the dial on GDP growth when the economy is weak, it is Government investment—not simply private sector investment—that is needed. When the economy is weak, we need more public investment; yes, it will increase debt, but it will also increase output and growth. Even the Chancellor recognised, when he delivered his first Budget, that the last Tory Government had cut capital investment too far, yet the Office for Budget Responsibility has shown that for the first three years of this Parliament, capital spending fell year on year—it is now £12.8 billion lower than Labour planned. Even the £3.5 billion of extra investment that the Chancellor has announced today will not be for this year or next year, but in three years’ time—too little, too late.

I would argue that, after three years of economic policy failure, the balance of economic advantage lies decisively in Government borrowing to invest and build. Borrowing for those purposes can be good borrowing. There is a difference: not all borrowing is bad borrowing. Interest rates on public debt are at an historic low, so now is exactly the right time for government, both national and local, to borrow for that investment. An open advocacy of the means, not just the ends, is overdue.

The Chancellor has confirmed in his Budget that his economic plan is failing, but he has also confirmed that he is sticking to that plan. We need a change. We need a change of policy, we need a change of Chancellor, and yes, we need a change of Government.