Balanced Budget Rule

Lee Rowley Excerpts

Wednesday 23rd January 2019 Westminster Hall

[Lee Rowley (North East Derbyshire) (Con)]

I beg to move,

That this House has considered the balanced budget rule.

It is a pleasure to serve under your chairmanship, Mr Stringer. I am extremely pleased to have secured this debate to consider an issue that has slipped down the agenda in recent years, namely that of fiscal responsibility and the actions the state can take in order to uphold and, in some cases, guarantee it.

I am delighted to see so many right hon. Members and hon. Members here today. It is packed to the rafters and standing room only, which demonstrates the level of interest in the subject. I hope that, by holding such debates in Westminster Hall, and by dragging so many hon. Members to them to volunteer contributions, we can slowly raise this important issue back up the agenda and draw attention to it.

The particular issue I want to discuss is the principle of the United Kingdom adopting a balanced budget rule as a way to improve its finances, and the underlying responsibility of Members in this place to ensure that the country pays its way in the future. The idea, which though simple is not universally liked, is that over an appointed period, within an agreed timeline, Governments should follow the novel concept of living within their means and not spend more than they can afford. Crucially, that commitment goes beyond words and there should be consequences if there is a failure to adhere to it.

To some, that is dramatic news; to others, such as myself, it just makes sense that Governments should not seek to balance the books on the back of the nation’s children and grandchildren. The principle of the never-never is, with appropriate structuring, just as apt for the Exchequer as it is for the average household in towns such as Dronfield, Eckington, Clay Cross and Killamarsh in my North East Derbyshire consistency.

It was James Madison, one of the US founding fathers, who said in 1790 that he went

“on the principle that a Public Debt is a Public curse.”

We would do well to take heed of such sentiments.

I have prepared a long speech, because I did not think that so many Members would be here. Before I begin, I will frame the discussion to ensure that the next few minutes can be constructive and useful. The debate could easily, quickly and seamlessly descend into the usual tit-for-tat and back-and-forth on the current state of our national finances, who got us to where we are and why we are there. I am sure that that may happen during the debate. I will say a few words about that in a moment, but I hope we will not dwell on it too much. The idea is to take a broader and longer-term look at where we are, and how we ensure that we leave our country safer, more secure and more resilient than we found it. That resilience should stretch to the nation’s finances as much as it does to its borders and national security.

I declare this debate, in so far as I am able, a Brexit-free zone. That is not because Brexit will not have repercussions or implications for the issue at hand, because it blatantly will, given that the Government’s deficit elimination target has been revised in recent years. I hope my hon. Friend the Member for Southport (Damien Moore) will still have a speech to make after those comments. This debate is about a time beyond Brexit, if we can possibly imagine such a nirvana, and about the day when headlines talk about police, health and education again, rather than backstops, Juncker and tariffs. I have been in this place less than two years, and I would say that at least 90% of what we talk about is Brexit. It sucks the oxygen out of the room, and I say that as committed Brexiteer. It also looks likely to continue to do so for much of the next year, so I hope that for the next few minutes we can try to avoid it.

My proposition is simple: that the United Kingdom considers over the long term the adoption of the balanced budget rule, set in statute, which requires Government to spend only as much as they raise, over a set agreed period, and that there will be consequences if they fail to do that. That would not be an aim or an ambition, but a hard rule, which would be flexible only inasmuch as anything can be flexible when it is set down in law. To be provocative, if we were so minded we might even consider tying any attempt to change future legislation—presumably by a spendthrift Government eager to give out sweeties or goodies to buy votes—to a referendum of the people themselves, given that we have become so adept at referendums in recent years. That would certainly focus minds.

What is the point of legislating on this issue? First, we should all have a moral problem with excessive Government debt. The United Kingdom’s general Government gross debt in September 2018 was, according to the Office for National Statistics, about £1.8 trillion, which is equivalent to about 85% of our country’s GDP. Last year we borrowed, and therefore added to that figure, about £40 billion. In the last couple of decades, our debt as a proportion of GDP has risen from approximately 40% to more than 80%. Those may be just numbers, but they have real-life and real-world implications.

I acknowledge the challenges that the Government have had in trying to get the country’s deficit under control. My party remains resolutely of the view that the Administration prior to 2010 both mismanaged the country’s finances and failed to prepare for the inevitable recession, which could not be avoided given that mere mortals cannot abolish the cycle of boom and bust, and given the well-recited failure to mend the roof when the sun was shining. I support the Government’s deficit strategy and the work they continue to do to manage it down. It has proved a difficult issue to resolve, but we should acknowledge the important milestone that we hit this year, which is that debt as a proportion of GDP is falling for the first time in many years.

Even with the acknowledgement of the good work that has been and continues to be done, the reality is that we are going to run a deficit for a good number of years to come. Even when we eliminate that deficit, which I hope will be as soon as possible, we are merely returning to a place that stops us piling on any more problems for our children and grandchildren, without really having a way to cut down the problem that has already been created in absolute terms. What is the long-term strategy for cutting that debt pile in absolute rather than relative terms? How do we avoid the current position becoming the baseline and the place we start from when the next recession comes? That place would, by default, reduce our firepower to deal with those hard times.

It is worth dwelling on the moral case for not running a deficit and for keeping debt low. The debt that we run up, for whatever good or bad reason, needs to be paid back, and if we cannot pay it back, we need to service it or pay for it. That limits the headroom of future generations to make decisions about what they spend their taxes on, because some of their taxes will go on servicing the debt. It mandates that spending that benefits one generation will be dealt with by another, which is an intergenerational unfairness that we should reflect on much more deeply than we do today, as ever-eager politicians dream up another opportunity to spend.

Reducing our firepower or fiscal space in the event of a recession is the worst kind of lack of planning, and one that will hamstring our ability to pull ourselves out of those recessions, when they inevitably come. As Ryan Bourne of the Cato Institute pointed out in his excellent recent paper on the subject, at least some of the literature that has reviewed the issue highlights that when Government debt gets too high for too long, it tends to reduce growth rates overall, meaning less economic activity, less growth and less prosperity in the long run. [Interruption.]

[Graham Stringer (in the Chair)]

Order. There is a Division in the House. We will recommence in 15 minutes.

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[Graham Stringer (in the Chair)]

Sorry about that. I had been told there was definitely a second vote, which there clearly was not. I call Mr Lee Rowley.

[Lee Rowley]

Before we went to vote I was talking about the moral case for low debt and ensuring that the servicing of that debt was as minimal as possible, to retain and support our ability to ensure economic activity in the future. It was not for nothing that Herbert Hoover intoned sarcastically:

“Blessed are the young, for they shall inherit the national debt.”

In this context, perhaps we can bestow a few less blessings on them in the future.

Putting aside the morality of debt, the key issue, which should drive all politicians regarding the accretion of Government debt, is the year-on-year cost of servicing and holding it, as mentioned earlier. The proponents of unfunded spending may highlight how the markets are not that concerned with relatively high borrowing so long as it can be funded. That may be the case. Let us hope, for all of our sakes, that we do not enter a period of high interest rates in the coming decades when national debt is to be rolled over.

The opportunity cost of that funding, on an ongoing basis, is much less understood in this place than in public discourse. It comprises a tax, year on year, on today’s generation for yesterday’s spending. Unlike the total debt to GDP ratio, which has oscillated wildly in the last century due to wartime spending, the cost of servicing the UK’s debt has been on an upward trajectory for the last century. Adjusted for inflation, the cost of servicing that debt has risen from an average of £12 billion per annum between 1900 and 1960 to nearly £30 billion at the turn of the 21st century. Since 2009, that average has hit £43 billion every year. In total, since 1900 the UK has spent something like £2.5 trillion just on servicing its debt. About half of that has been spent since I was born—I still like to think of myself as being relatively young.

The bad news is not likely to stop there. With the continuing running of deficits until well into the 2020s, the annual cost of servicing that debt is projected by the Office for Budget Responsibility to hit more than £50 billion by the start of the next decade. In this Parliament alone, debt servicing costs are projected to be about a quarter of a trillion pounds over the five years. The sums are huge and growing. They represent a significant opportunity cost to the UK as a whole.

[Alex Chalk (Cheltenham) (Con)]

My hon. Friend is making a powerful point. To put it into sharp focus, does he share my concern that the annual cost of servicing the United Kingdom’s national debt is more than we spend on schools? As a matter of morality, we need to keep debt under control so that we can truly allocate resources where they are most valued.

[Lee Rowley]

I could not concur more with my hon. Friend, as I will address in my next paragraph. Putting this into context, about 8% of all current Government spending is diverted towards debt servicing. In 2015, that made interest payments the joint fourth largest proportion of spending by the UK after health and welfare, and on a par with defence. Spending on education, the police and transport pales in comparison with the budget allocated to debt interest. That budget could be used, as my hon. Friend has just outlined, for myriad other more socially useful activities, such as paying for a hospital to be built every four days, or for approximately 2,500 nurses, police or teachers to be hired every day throughout the year. For those of us with a more centre-right political outlook, the £45 billion spent on interest costs in 2015 could even have been used to reduce the size of the state through tax cuts, perhaps as large as 8% or 9% in the standard rate of income tax. If the populace actually knew that such a significant chunk of the taxes they paid every year was being used to pay for spending chalked up 20, 30 or 50 years ago, would they be content doing the same or worse for their children, given the sacrifices and opportunity costs involved?

We know what the problem is, so why do we not just do something about it? Why do we need a legislative solution for this issue? The problem is that we as a country are not that good at stopping adding to our debt. Our Labour friends—who have temporarily deserted the Chamber—have a tendency to spend money without a huge amount of regard for the implications. My party usually ends up having to clean up the mess. Even on my side, there are not insignificant number of people who cannot resist the temptation to spend when it comes down to it.

Our parliamentary system and representative democracy are excellent at pushing the cause of individual spending requirements, many of which, I do not contest, are no doubt noble. Yet there are few people who will exercise proper restraint or promote proper fiscal responsibility to ensure that all of these myriad pots of money are truly paid for. It is always tomorrow’s problem. Mañana, mañana, as they say. The numbers show just that: over the last century, the United Kingdom has consistently increased its national debt and its deficit spending. Both in absolute terms and as a proportion of GDP, the UK’s debt burden has grown significantly since the turn of the 20th century. The recent political consensus in the UK demonstrated a clear disregard—if we are honest—for the consequences of deficit spending.

Prior to the second world war, deficit spending tended to be closely correlated with war and national defence. In more than half the years between 1900 and 1939, the UK ran an absolute surplus, including during much of the late 1920s, during economic crisis. Since 1945, however, the achievement of a surplus in the UK’s national spending has been relatively rare. Only 13 out of 71 years saw the deficit being reduced, and on only two separate occasions—the late 1980s and the late 1990s—has the UK run surpluses for more than a couple of years at a time.

If all that sounds like one long criticism, it is not intended that way. It is just a statement of fact. Whether poverty or plenty, feast or famine, there is one almost universal constant: the Government spend more than they take in. That is not unique to the United Kingdom, but a feature of western democracy: red ink reigns supreme. The main variable in western liberal democracies is whether they overspend by a little or a lot. France has never run a Government surplus as a proportion of GDP since the 1970s, nor has Italy. The United States has managed to do so only once since 1960. Even Canada, one of the more enlightened in tackling public debt, has only managed to run surpluses in less than one third of financial years since the 1970s. The Maastricht protocol on excessive debt procedure says that countries should not exceed a 3% borrowing ceiling. Just think on that for a moment: there is a protocol that automatically sets an expectation of overspending—just that it is not excessive. And we wonder why debt has significantly increased in most western democracies over the past 30 years. There is an urgent requirement, over the long term, to address this inherent deficit bias in democracies.

The idea that we need to take more drastic legislative solutions is not that new; it is just that we have never properly applied it to national spending before. Sure, the Government have their charter of budget responsibility and an equivalent office creating the data and watching what is happening. Yet the charter requires people only to identify that they are changing policy. It does not really hold people to account or limit them.

[Jim Shannon (Strangford) (DUP)]

On changing policy, I am very aware of where we are at this moment in time. Does the hon. Gentleman agree that a post-Brexit economy will provide an incredible opportunity to expand and invest, that the Government must be prepared to invest in our own people, and that if we must borrow to do so, it must be done in a reasonable and controlled fashion? As he has said, we must be prepared to back our own people. I hope that the Minister will respond positively and say that he will ensure that there will be Government investment in our businesses. That is very important.

[Lee Rowley]

I completely agree that we have a big job to do after Brexit, in terms of ensuring that our infrastructure works and that our country is well prepared for the future and has the necessary flexibility to take the opportunities that will come our way in the coming decades. If, from a Government perspective, we need to spend in order to do that, we should do so. I am not here to disregard Government spending—it is a force for good. However, it has to be done properly, it must have a clear outcome and we have to pay for it.

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On resuming—

[Lee Rowley]

I was talking about how legislative solutions are applied, what is already in place and the charter for budget responsibility. My point was that in non-financial areas of Government activity, we are happy to bind ourselves to long-term targets, because there is the political will. The most obvious instance in recent years was the Climate Change Act 2008, which created an explicit legal requirement for future Governments to reduce greenhouse gases by 80%. If a political consensus can be built for protecting the country against such a danger to our children, why cannot the same be done to prevent economic problems for future decades?

That is where a balanced budget rule could really make a difference, with a legislative requirement to balance our budget over a period, minimising the growth of the debt to be left for following generations to deal with. It is not all that innovative. The OECD estimates that about 100 countries have some kind of fiscal limiting framework. Those can be voluntary or compulsory, and they vary in strictness and the degree to which they are adhered to. None is perfect, but it is at least arguable that over time the focus on fiscal rectitude focuses minds and attention on delivering better outcomes.

Perhaps the most obvious example of a budget rule, and the best known, is Chile’s. In the 2000s, Chile adopted a rule requiring structural surpluses to be run, so that the national debt could be reduced significantly. Broadly, under the structure it created, an estimate was made of the country’s economic potential over future years, and spending was allowed only to match the anticipated growth and revenue.

What was the result? There was a sharp reduction in net debt, surpluses as high as 8% in the years leading up to the economic crisis, and the upgrading of the country’s credit rating. Admittedly, some of that was possibly because of the commodity boom. None the less, the rule permitting appropriate balance to be given to both revenue and spending was important. Even today, after the rule has been challenged and battered a bit more through experience and difficulty, Chile’s debt remains significantly below that of many other countries. It is about 20% of GDP, rather than the 80% that we are grappling with.

Switzerland is another example where a legislative solution has focused minds and improved overall fiscal discipline. The Swiss “debt brake” was introduced in 2001, having been approved in a referendum—something that that country is wont to use for important national policy questions. Integration into the national constitution followed. There is a requirement for structural balanced budgets, through the capping of annual spending with tax revenues, plus or minus some flexibility. Again, the change had a significant impact. A nation whose debtto GDP ratio had significantly increased—from around 15% of GDP in the early 1990s to 45% at the time of the referendum—saw a rapid reduction over the succeeding years. Debt to GDP is now about 25%, and is projected to fall.

Switzerland and Chile are not alone. Sweden is another country that learned from overspending, this time in the 1990s, and it has been relatively successful at maintaining surpluses. The Germans have introduced in their constitution a cap of 0.35% on structural deficits. It is not exactly a surplus, but it is a way to prevent large consistent deficits. Other examples that the OECD has highlighted include Argentina, Belgium, Denmark, Estonia, Hong Kong and the Netherlands, although their arrangements vary with respect to their legislative teeth and their success. Even the French, who have not been able to balance a budget for decades, have made tentative steps in that direction, with the transposition of their fiscal compact in 2012. The fact that that has not gone anywhere is a topic for another conversation, but at least they were moving in that direction for a time.

Of course, legislation is not the only solution, and it does not necessarily guarantee a positive outcome against politicians determined to get around it. The United States’ periodic fights over the debt ceiling—a mechanism that was designed to stop overspending—always have one outcome. In the 1980s, the attempts in the States to balance the federal budget under the Gramm-Rudman-Hollings Act, through mandatory sequesters—automatic cuts in spending in the event that politicians could not agree a budget that would fit—were unsuccessful, as resets and changes occurred when the going got tough. Nothing is infallible if we do not want it to be. Creative accounting, redefinition of spending as investment or capital, direct appeals and canny political manoeuvring can all undermine fiscal responsibility if politicians want that to happen.

I do not argue that a balanced budget rule would be a panacea. In Chile in recent years, there have been issues when estimates have not been realised and projections have been undershot. Switzerland also exempts elements of spending, such as social services, from the rules. If people want to get around this stuff they will, and no Parliament can truly bind the hands of a future one. Yet the idea of fiscal responsibility being formally codified beyond aspirations that can be amended by mere ministerial statements creates an impetus and a legal framework that focuses the political mind and public discourse on ensuring that we do something as basic as spending only as much as we raise.

What kinds of solutions should we consider? That depends on the political will and the desire to focus on the issue at hand. First, it is right to fix our immediate problem and finish the job of eliminating the deficit. I support what the Government are doing about that and want to give them gentle encouragement to accelerate it where possible. That is the first step. There is the potential to legislate in the future once we have reached a surplus, or perhaps even when the point is reached at which the deficit is relatively small, which we are starting to get to.

There are various options. We could try to act voluntarily. That, to some extent, is what we have done already, and it is absolutely better than nothing, but we can in truth see that that approach has shortcomings—for some of which there are good reasons. I shall not provide a running commentary on Government policy, which, as I have said, has been positive overall. Plans are moved, for good and bad reasons. The conveyor belt of politicians calling for more spending and pushing their own hobbyhorses—holding Westminster Hall debates—continues. Many such ideas have merit and value, but we have effectively created a pressure cooker in Parliaments such as ours, with a desire just to ask for more and do more, and seek out new ways to spend money on fixes. When one parliamentarian does it, others follow suit. We remain addicted to spending and voluntarism goes only so far.

How, then, can we formalise the approach I am outlining? We could, as happens in the United States, make it a formal requirement to vote on increasing debt when it approaches established ceilings, or when there is a question of its exceeding them. The Government debt is fixed and capped and politicians have to make a clear decision in front of their electorate to change it. That is useful but probably, as in the US, it would not focus the minds of politicians too much. Often people’s eyes glaze over when they see big numbers. That is one of the reasons why my party should stop trying to win the public services spending arms race with the spendthrifts on the Opposition Benches and focus instead on what the money is actually doing to improve outcomes. A debt ceiling has limitations, but it would send a clear signal.

Taking things further, we could establish a simple balanced budget rule that we would not spend more than we took in over a defined year or over the course of a few years. That could be done through adept forward estimating or by linking spending to the trajectory of past revenue growth. The Government would have a formal responsibility not to overspend, and to set out their plans clearly, on a short-term basis, showing how they intended to avoid overspending. In some ways, that would be the simplest solution—a clear understandable position and a clear understandable requirement to ensure that the budget is balanced. It might also improve public understanding of and support for the proposal.

Such rules, however, are often clunky and inflexible. Absolute requirements to budget on an annual or near-annual basis will significantly reduce headroom and the flexibility to deal with short-term shocks and recessions when there is at least an arguable case for fiscal stimulus in certain circumstances. That is probably one reason why such strict rules do not apply in many places around the world.

Alternatively, we could think about a more flexible approach that achieves the overall objectives, but that relies more heavily on estimating being correct, and on the Government not delaying hard decisions through a lack of political will. The requirement to balance a budget over an economic cycle would seem a strong starting point, although identifying the start and end point of that cycle will be difficult and reliant on guesswork that would no doubt not be correct in a number of cases.

Flexibility could be introduced through various mechanisms. For example, the Swiss debt brake accepts that at times the Government will need to amend their approach due to external factors. To accommodate that, it applies a model of debits and credits, so if a Government fail to achieve a balanced budget in one year, they carry over that failure to another year through a fiscal debit that needs to be made up. Similarly, fiscal credits can be built up in a bank in readiness for future problems. To avoid future debts being run up too heavily, once debits exceed 6% of total Government spending, an automatic requirement kicks in to eliminate them within three years. An exceptional rule also applies so that in times of genuine emergency or need, both Houses of the Swiss Parliament can approve spending on an exceptional basis that breaks the rules. Even then, however, the Swiss have found a way to accommodate that, and automatic amortisation of that exceptional spending must be dealt with within six years.

The challenge of the Swiss model is its relative complexity—try explaining that down the pub after a few pints or during hustings at the next election—but its beauty is that bygones cannot be bygones, which is often the flaw in attempts to regulate deficit spending and debt growth. If Chile gets its estimates wrong, it tries harder next time. If the Swiss get them wrong, they have to find a way to compensate, and all the while the cost of servicing debt remains low and does not threaten the financial health of the next generation.

Despite Brexit sucking the oxygen out of the room, and despite the challenges that the UK faces in the coming years—including from that B-word—we have to make a choice. The Government have been consistent and clear that they believe in fiscal responsibility and discipline. We have had success in restoring the UK’s financial health after such difficult times 10 years ago, and the trajectory continues—albeit a little slowly for my liking—to get us back to balance. Nevertheless, we need to talk about what we do when we get there. As some politicians occasionally point out, dealing with the deficit does not mean that we have dealt with the debt, and the conversation needs to move on to that.

Balanced budgets, fiscal rules and the promotion of fiscal discipline will be the weapons and constraints—perhaps we could call them the backstops—for when the next generation of politicians, whoever they are, are tempted to spend, spend and spend again. Indeed, some of the current generation are quite tempted to do that at the moment. Having balanced budget rules and the codification of fiscal discipline is one way to do that. It is not a perfect solution, but the status quo is far from perfect in this regard. Perhaps as a nation we should start to think more about how we create frameworks for future success, and how we address the fundamental challenge in western democracies of celebrating the money we want to spend—whether necessary and virtuous, or inefficient and virtue signalling—while not paying sufficient attention to the cost of it all. We cannot and must not keep spending today on the backs of our kids and grandkids tomorrow. If politicians are not willing voluntarily to adopt restraint, perhaps it is time to harden our resolve.

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[Peter Dowd]

The hon. Gentleman is spot on. I do not want to misquote the Secretary of State for Transport, but when East Coast went bottoms up he said that that just proved that the market works. That is the sort of economic approach that the Tories take to our country.

Let me go through the three criteria one by one. We are a party that, first, takes seriously the mantle of being guardians of a sustainable economy. We fully costed our election promises in our grey book, “Funding Britain’s Future”. The Conservative party, by contrast, gave no costings whatever in its manifesto. As the shadow Chancellor said, the only numbers in the Conservative party manifesto were the page numbers.

Meanwhile, Carl Emmerson of the Institute for Fiscal Studies said in his election briefing that Labour’s

“forward-looking target for current budget has much to commend it”.

The IFS also estimated that we would have met our deficit target with £21 billion to spare, and that we would meet our debt target.

Secondly, we recognise that Government spending is not something to be scared of, or to have a phobia about, and that some economic metrics do not fully capture the benefits of the gradual build-up of public assets, as the hon. Member for Dundee East mentioned. That is why we distinguish between day-to-day spend and investment in our fiscal credibility rule, because investment is a different kind of Government activity that contributes to a stock of public assets, providing benefits over time. A country is not a house, or an individual who has a lifetime; it goes on, as we know, for a long time. Comparing us to a household might be a soundbite, but it is economic fantasy.

[Lee Rowley]

Given the hon. Gentleman’s point about us binding our hands, can he explain why, in 2006, I think, his sister party in Chile not only determined that it was going to adopt the kind of policies that he just described, but codified them into law?

[Peter Dowd]

I am not here to explain what sister parties anywhere do. I could quote sister parties for the Tories all over the place. The hon. Gentleman should be careful what he is wishing for when he starts to make those sorts of comparisons.

The Conservatives have been unable to appreciate this point in their words and in their actions: the Government’s fiscal target of cutting borrowing to less than 2% of GDP by 2021 does not exclude investment, or distinguish between spending and investment. In so doing, the Government overlook, and undervalue, the special character of investment. They do that time after time.

Their austerity programme, the mythical end date of which was in 2018—previously, it was before that—was more a signal of the Government’s failure than of any actual shift in approach. It has done lasting damage to our economy and society, and has left us with rough sleeping up by 169% since 2010, stagnant wage growth—the worst since Napoleonic times—and few examples of public infrastructure being patiently built up and supported.

The third aspect is flexibility when thinking about sound economic policy. The Tories’ austerity programme arises from, as the hon. Member for North East Derbyshire has reaffirmed today, a rigid ideological belief—not always reflected in practice, I have to say—that a smaller state is always better, notwithstanding good evidence of the state’s entrepreneurial capacity and the human costs of austerity. Such rigidity in approach is something that we have avoided in our fiscal credibility rule.

The zero bound knockout that we proposed, which would allow the Bank of England to change course in times of impending crisis when interest rates can do only so much, shows our willingness to adjust economic policy frameworks in the light of circumstances. Any sensible Government would do that—not bind themselves into a failed ideology and process. That knockout is informed by lessons learned after the global financial crisis—lessons that the Conservative party seems incapable of learning—when it became clear that continual cutting of interest rates was having little impact on spending habits and aggregate demand.

More was needed from fiscal policy, and that zero bound knockout—the fourth element of the fiscal credibility rule—acknowledges that that will sometimes be the case. Professor Simon Wren-Lewis writes that if that part of the rule

“had been in operation in 2010, we would have seen further stimulus in this and perhaps subsequent years, leading to a much quicker recovery from the GFC.”

Wren-Lewis describes that part of the rule—the part that allows a reversion to expansionary fiscal policy in times of crisis—as the part that makes the rule

“unique, and brings it up to date with current macroeconomic thinking.”

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[Lee Rowley]

I thank everyone who came to the debate—word clearly got out and everyone came in towards the end to hear its quality. I thank my hon. Friend the Member for Cheltenham (Alex Chalk), the hon. Members for Strangford (Jim Shannon), for Dundee East (Stewart Hosie), for Motherwell and Wishaw (Marion Fellows) and for Bootle (Peter Dowd), and my hon. Friend the Member for Southport (Damien Moore) for their contributions.

I will end with a few points. First, I say to the hon. Member for Bootle, whose constituency I have the greatest affection for, having spent most of the decade before I joined this place working there, that it is possible to conflate austerity with this discussion, but the point was to go one step further and say that, whatever the political decisions we choose to make—we can have a debate about that—we should pay for them at the same time. Some of the people I have respected the most in fiscal and financial terms over the past 30 years have been social democrat and Labour Chancellors, including Roger Douglas in New Zealand and Michelle Bachelet in Chile, which, as I have said, codified a rule.

Secondly, in my view there is nothing ideological to living within one’s own means, over an appropriate cycle and with appropriate stabilisers and appropriate flexibility. The hon. Member for Dundee East is absolutely right to say that there is no absolute answer, but I know what the answer is not. It is not continually increasing debts, running a deficit continually or semi-continually in the long run, with the costs of servicing that debt approaching and about to exceed £50 billion. If that is the passion of youth, I apologise, but perhaps when we meet again to talk about this issue—and I hope we do—and we figure it out, the hon. Gentleman might nominate us all for the Nobel peace prize.

Question put and agreed to.

Resolved,

That this House has considered the balanced budget rule.