Budget Resolutions and Economic Situation

Debate between John Redwood and Brooks Newmark

Wednesday 18th March 2015 Commons Chamber

[Mr Redwood]

I am giving the cash numbers, which are clearly set out on page 111. If the hon. Gentleman is patient, I will come on to deal with the argument about real terms and the percentage of the economy.

Let us start with cash. The £60 billion increase in the annual spend at the end of the period is a big increase, and if we can keep inflation of costs down, it could provide a real increase. We had these arguments at the beginning of the last Parliament. When I quoted the cash figures, people said it would amount to a real decline, yet we have had a real increase, with the last two years seeing real increases in total general public spending, as I indicated in a recent intervention and as this Red Book makes very clear. If the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) reads it he will see the real increases in general Government current spending over the last couple of years. Those have been affordable and the lower rate of inflation is helping.

If we look at public spending as a percentage of GDP, we see that, yes, it will fall, but that is extremely good news, because it means people will be able to keep more of the money they earn from their productive activities and as the economy is growing we can have better public services.

One of the cruellest myths being put around by the Opposition at the moment is that if we took public spending to 35% of GDP, we would be cutting it to 1930s levels. That is complete nonsense: for most of the 1930s, public spending as a percentage of GDP was well below 35% in any case, but I recently looked at the numbers and found that, in real terms, public spending this year is nine times the level of real public spending in the early 1930s—nine times in real terms.

[Mr Newmark]

It is statistically worth pointing out that the direction in which we are heading is towards 35.2% of GDP, but that when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was Chancellor he was spending about 35.8% or 35.9% of GDP. There is not a huge difference between where we are going and where he was.

[Mr Redwood]

To make the point, the Chancellor has said that he will spend a little bit more in the last year of the period so that we reach exactly the percentage of GDP that Labour thought appropriate in 2000. We cannot say that because we are spending the same percentage of GDP we have cut spending or that it is down in real terms. If we have a healthy, growing economy, public spending is well up in real terms, as is the general size of the economy. We should welcome that. What we want is growth in the economy, so that we can have affordable growth in the range and quality of public services. That is exactly what this illustrates. I hope that Labour Members will stop trying to con people into believing that if we ended up with 35% of GDP—1% lower than the Chancellor intends—we would somehow have 1930s levels of public services. It is so absurd that I cannot believe that they even dare to repeat such nonsense day by day.

What we want from this Budget, and what I think it helps to deliver, is more growth. It is great news that we now have such good employment figures, which show record highs. It is good news that unemployment is reducing and good news that youth unemployment in particular is reducing.

What has happened over these five years is quite remarkable if we consider two important background points. The first is the state of the banks inherited in 2010. This House has never really understood or grappled with the magnitude of what happened to the banking system under Labour, or the magnitude of the changes between 2008 and today, particularly with respect to RBS and HBOS. If we had asked most economic forecasters what would happen to the UK economy if we took about £1 trillion of assets off the balance sheets of two leading banks, they would probably have forecast that the economy would crash in a remarkable way. What is fantastic for our country is that after the initial crash over which Labour presided in 2008-09, we have managed to get the economy back to growth while mending the banks and going through the extraordinary shrinking on the banking balance sheets. [Interruption.]

I find it remarkable that Labour Members will not listen to what I am saying. They lived through this dreadful experience and their regulators allowed the banks to over-expand their balance sheets, when many of us were saying that it was going too far. [Interruption.] Indeed, we did. We constantly said that regulation was too lax. I remember writing in the report of the economic policy review undertaken by the Conservative Opposition that, while in some areas there was far too much regulation, the regulation of the things that really mattered—cash and capital—was far too lax, and needed to be tightened. However, the Labour Government and their regulators then made the worse mistake of over-tightening in a hurry, and precipitated a major crash. Labour needs to learn from that. Indeed, we all need to learn from it, because we do not want it to happen again. We need to understand why there was such a big crash in output and in people’s living standards and real incomes, and why it took time, between 2008 and 2013, for growth to resume. The reason was that the banking system was so badly damaged that, obviously, it took time to get it back into shape.

As the Chancellor said himself, there was another reason for our problems. In 2011 there was an extremely unpleasant euro crisis, which had an impact on Britain because we live by foreign trade as well as by our domestic activities. We had to shelter ourselves from the worst of that. We are now in the process of orientating our trade much more strongly towards Asia and the Americas, the growing parts of the world, and away from the European area, which is mired in recession and is still experiencing enormous difficulties. It decided to create a single currency without creating a single country to back it and love it, and is having to live with awful strains and stresses as a result.

As we meet today, this Budget is an important event. It is certainly a very important event politically in the United Kingdom. However, a far more important set of events is taking place on the continent, where hectic negotiations are taking place between Greece, Germany and the rest over whether Greece can stay in the euro. It is not easy to see a happy outcome in either direction from those very pained discussions, but are we not glad that we are not having to live with that awful experience in this country, thanks to some of us who urged very strongly that we should stay out of the euro? [Interruption.]

The hon. Member for Bishop Auckland (Helen Goodman) thinks it is funny that Greece has a youth unemployment rate of 50%, but I do not. I think it is a disgrace. I also do not think it is funny that several countries on the continent have a general unemployment rate of 25%. That is quite unacceptable, and the Labour party would rightly condemn it every day of the week if it were happening here, but it is not happening here because we ran our own economic policy, and we have done a much better job that they did on the continent.

Budget Resolutions and Economic Situation

Debate between John Redwood and Brooks Newmark

Wednesday 19th March 2014 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

I would like to remind the House of my declaration of interests: I provide some advice on global economies and investments to an industrial company and an investment company.

I greatly welcome this Budget, because I think it is right that we need to do more to help the promotion of exports, industrial investment, the rebalancing of our economy and continuing the long process of getting the deficit under control. In our exchanges already I have highlighted the fact that debt interest will be higher than the education programme next year, despite the Government’s best endeavours, and that unless we carry on to make good and rapid progress to get the deficit down and eliminate it, that debt burden will build up and future Governments, whoever they may be, will find they are spending more and more money on debt interest and have less and less for the public services that our electorates expect us to provide.

I would like to clear up a common misunderstanding about how that is being done that I think has occurred because of the use of jargon and economists’ language in describing the process. The reduction in the deficit has been described as 80% by spending cuts and 20% by tax rises. That is true if the programme is successfully completed by 2018 and if we measure it as a percentage of GDP at that point, but that is not how most people think about how an excessive deficit is curbed. If we have a large deficit in our own accounts, we have either to find a way of earning more money or to make immediate cuts in the amount of cash that we spend. I think a lot of people outside the House think that, because we inherited a deficit of £160 billion, 80% by spending cuts meant £132 billion-worth of cash cuts in public spending. Of course it does not, and I am very glad that it does not, because that would have done huge damage to important public services.

What the Government have decided to do is limit the rate of increase in public spending and promote a more active economy so that tax revenues eventually catch up, and we are in that long process. The first three years of this Government saw very little growth in the economy, which delayed the reduction in the deficit because we did not get the surge in tax revenues we were hoping for. Now it looks as if there is better news, with faster growth coming through, and so the process can be completed, assuming the economy still recovers.

I had thought we might cut public spending in real terms in the first two or three years, but it appears from the latest figures that there was a small real increase in public spending. In the first three years, current public spending went up by more than inflation, and if we look at the impact on the economy as a whole, it gives the lie to all those who suggest too much was cut too soon, and that that reduced output and was the cause of the delay in growth. If we look at the attribution of growth and decline in activity and incomes, we see that the public sector made a small positive contribution to the economy in every one of the first three years of the coalition Government. I hope that reassures some of those on the Opposition Benches who felt too much was being cut and damage was being done. The good news is that it was not. There will have to be some reductions in some programmes in the years ahead in order to hit the targets, however, because although public spending will continue to rise in cash terms, there will need to be a little bit of a real reduction in the next Parliament; and because some of the programmes need to go up quite a lot—debt interest will go up quite a bit anyway—we will have to make reductions in other programmes, whoever is in office.

[Mr Newmark]

My right hon. Friend is making an excellent point. Does he agree that, notwithstanding the austerity he is talking about and the fact that more than 500,000 jobs were lost in the public sector, what is particularly remarkable about these tough times was that 1.7 million jobs were created in the private sector?

[Mr Redwood]

Yes, that was magnificent news and it shows that the private sector is remarkably resilient despite all that has been thrown at it. That is why we can now look forward to both better living standards and a better public sector: we need all those people to be in work and paying more tax in order to pay for those public services that are much-wanted by our constituents.

I would also like to deal with the argument from the Opposition, which I thought was put in a very exaggerated form by the Labour leader in his response to the Budget, in what was a rather partisan appearance which was out of sympathy with his new style at Prime Minister’s questions. I am not one to condemn partisan debate, as I think sometimes it livens the place up, but it was a very partisan speech by the Leader of the Opposition.