Local Government Financing
Debate between John Hemming and Alison McGovern
John Hemming
One has to make judgments on the time scale based on the effect within the markets. We are not talking about paying off the debt over five years. There will still be net borrowing in the fifth year.
Alison McGovern
Will the hon. Gentleman comment on how effective we will be in paying back the deficit, making these cuts in-year and cutting programmes to which commitments had already been made? Surely that is waste.
John Hemming
First, there needs to be an understanding of terms, because I heard the phrase, “paying back the deficit”. However, the deficit is the forecast difference between income and expenditure in the financial year, the debt is the amount of money that the country as a whole has borrowed, and there is often a lot of confusion between the two figures. This year, if we borrow another £150 billion, that will be added to the debt, and next year, if we borrow some more, that too will be added to the debt. Although we are talking about reducing the debt during this Parliament as a proportion of gross domestic product, our financial strategy does not talk about paying back the debt in cash terms. In fact, at the end of this Parliament we will end up with a higher level of debt, so in comparison with Sweden we cannot pay it back. We would like to do so, but we cannot do things that quickly.
We have to make people confident that the country is solvent. The country could be liquid at this stage without any great difficulty, but we have to make people confident that it is solvent and capable of paying back the debt so that the interest is paid. We are not paying back the deficit, however. The deficit is the amount borrowed each year. [Interruption.] I have another four minutes and am quite happy to explain to the Labour party the basics of finance, because there is a lot of confusion about debt and deficit. “Deficit” is the amount of money borrowed each year on a net basis—[Interruption.] I shall get through to Opposition Members at some stage.
Alison McGovern
I really do understand the difference between debt and deficit, but will the hon. Gentleman explain how the waste of cutting programmes in-year will help to reduce the deficit?
John Hemming
That will reduce the deficit because we will spend, and therefore, have to borrow, less money this year. That is not complicated. If we spend less money, we do not have to borrow as much, because the money that we spend has to be borrowed on the gilts market. It would be nice if the reduction were done more cost-effectively at times, but £6 billion is not so great in comparison with the overall deficit. It is appalling for local authorities to pretend that they did not know that cuts were coming down the track, that the country had a major financial problem and that they had to do something. There will be difficulties, but Total Place is part of the solution rather than the problem, and there is no question but that we have to do something.
In the past I have explained how, through various regulations, the people who go round and wash people’s feet are different from those who go round and cut their toenails, because they have to have different qualifications. That is not an efficient way of providing public services. If, through Total Place, the same person can go round and wash people’s feet and cut their toenails, that will be more cost-effective and involve less travel time—[Interruption.] The hon. Member for Nottingham East (Chris Leslie) should make an intervention if he wants to speak.