Liam Byrne
Main Page: Liam Byrne (Labour - Birmingham Hodge Hill and Solihull North)Department Debates - View all Liam Byrne's debates with the HM Treasury
(14 years, 5 months ago)
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Mr Gauke
I am grateful to my hon. Friend for that intervention. As he knows, with this Budget we have set out more distributional analysis than any previous Government have ever done before. On the VAT increase, I say to him that all tax matters are kept under review. He has a fine reputation for finding opportunities to raise particular points in Parliament, and I am sure that he will do so on this matter. I am sure that there will be opportunities for him, and for other hon. and right hon. Members, to raise these matters in future. For the moment we have put in place an increase in the VAT rate. We cannot make any promises to change it, and it would be dangerous for us to do so, given some of the points that we debated in Committee; a promise of a VAT cut in future is likely to result in a deferral of expenditure. However, this is an ongoing debate and I am sure that he will contribute to it fully, just as he has contributed to this debate fully over the past few days.
We believe that this Budget has been demonstrated to be a progressive Budget that deals with the deficit fairly; all sections of society contribute, but the richest pay more than the poorest. I also have to make the point to the House and to my hon. Friend that, of course, we should not look at the VAT increase in isolation, because it is part of a wider package that ensures that the most vulnerable in society are protected. It is also worth making the point that during these days in which we have debated this matter we have learned that support for the VAT increase was more widely spread than we ever realised. With exquisite timing, we learned from Lord Mandelson that the previous Chancellor wanted to raise VAT.
Mr Byrne
Before the hon. Gentleman leaves the subject of VAT, can he clear up one problem that I came across in the Red Book? The scorecard for the Budget says that about £8 billion will be raised in taxes by 2014-15, yet the Office for Budget Responsibility forecast in the back of the Red Book says that only £3 billion in tax will actually come through the door. Why is there a £5 billion difference?
Mr Byrne
The matter can be cleared up very quickly. The scorecard on page 40, with which the hon. Gentleman will be enormously familiar, states that the “total tax policy decisions” will result in £8.230 billion being received in 2014-15, whereas table C12 on page 101, which shows the OBR forecast, says that only £3.1 billion in receipts will actually come in. Why is there a difference between what is on the scorecard, which is a little more than £8 billion, and what is in the OBR forecast for the money that will actually be raised, which is £3 billion?
Mr Gauke
The right hon. Gentleman appears to be raising a perfectly fair point. The OBR was heavily involved in calculating the numbers for the scorecard, so I suspect that there is a perfectly innocent explanation and I will endeavour to ensure that he receives it before this debate reaches its conclusion.
Mr Byrne
Is not the answer very straightforward? Is not the answer that the Budget depresses growth so much that tax receipts will actually be down, so even though the scorecard sets out a series of measures that should, in theory, raise the amount that it sets out, the OBR, understandably, knowing that growth is depressed, has set out that far less money will actually come through?
Mr Gauke
If that is the point that the right hon. Gentleman is getting at, I must point out what the OBR made very clear in the Red Book. That point is that it is misleading to make a straight comparison between the growth figures that were projected on the basis of market expectations of interest rates, which were lower as a consequence of the anticipated fiscal tightening that this Government promised to deliver and that we have delivered, and the forecasts that do not take that into account. That is a point that we have gone over a number of times. The OBR said that such comparisons were potentially misleading, so if that idea is what is driving the right hon. Gentleman’s queries, I must point out to him that the OBR would not accept that.
Mr Gauke
My hon. Friend might well have the answer. One point that we learned from Lord Mandelson in the course of his much-loved memoirs is that the then Chancellor, who is now shadow Chancellor, apparently accused the then Prime Minister of having a “ludicrously over-optimistic” view of what the growth forecasts would be and about
“Britain’s ability to support such a large and expanding deficit.”
That might well be the explanation.
Mr Byrne
I rise with the ambition of being helpful to the Minister as he will not want knowingly or unknowingly to mislead the House. He will know that the OBR forecast on page 101 is a forecast of what tax receipts will come in on the basis of the Budget set out in the Red Book. These things are entirely consistent with each other and the forecast has nothing to do with previous Budgets or previous OBR estimates. Will he confirm that for the House?
Mr Gauke
The fact is that the big risk to growth for this country would have been if we had done nothing about the deficit. If we had tried to ignore it, we would have found ourselves having our credit rating downgraded, as has happened to Greece, Portugal, Spain and now the Republic of Ireland, and we would have faced a contagion of sovereign debt. We have taken the necessary actions to ensure that growth is secure and the fact is that the OBR projections have far greater credibility than the previous Government’s—we have learned about how political they were in making their growth forecasts. Our growth forecasts have credibility. Our public finances have a credibility that they did not before. We can be proud of that.
As we have heard, the previous Treasury team believed that an increase in VAT was necessary and that was only blocked by the previous Prime Minister. One can hope that the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has seen the error of his ways. I noticed that he did not feature in the Division Lobby opposing the VAT increase—perhaps we have persuaded him, after all, that his views on VAT were unwise. We have succeeded where the shadow Chancellor failed.
We have heard legitimate concerns about how the most vulnerable in society will be protected, but we have sought to provide such protection in the Budget. For example, we have committed to the uprating of the basic state pension through a triple guarantee of earnings prices or 2.5%, whichever is highest, from April 2011. We have taken steps to increase the child tax credit.
Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)
I am very grateful for the opportunity to say a few things in conclusion to our debate about the panic Budget that has been sped through this place. To all those who have observed these debates about the Budget and the Finance Bill, it is now clear that the Budget is born not of economic necessity, but of political anxiety—anxiety that, if Liberal Democrat Members are allowed to see any more evidence of the damage that the Budget is doing to confidence and growth, they will remember where they buried their Keynesian tradition, disinter it and refuse the Chancellor their support.
The great question that this Budget and Finance Bill should have answered is how do we lock in the recovery that Labour left? Winning that recovery dominated our final two years of office. Not since 1945 has the world been hit by a recession on the scale of that which hit our shores in 2008. The global economy shrank by some 1% for the first time since the war, G7 economies shrank by some 3% and world trade fell by some 12%. What started as a collapse in confidence on Wall street rapidly infected the world’s financial system and triggered a disastrous domino-like collapse in confidence among markets throughout the world. No country, not least one of the world’s great trading nations, could be isolated from its effect, and we were not.
Kelvin Hopkins
My right hon. Friend referred to the 1940s, when the deficit was massively higher than it is now. Of course, the magnificent Labour Government of 1945-51 grew their way out of problems by keeping full employment and public spending going.
Mr Byrne
Precisely. The Minister could not understand that point from his own Budget, but I shall explain it in more depth in a moment.
On Friday this week, we will be able to test the durability of the recovery that Labour delivered. Almost two years on from the oil price hitting $147 and the collapse of Lehman Brothers, the Office for National Statistics will publish growth figures for the second quarter of 2010, which I am sure all hon. Members await with some interest. But this much we already know. The ONS has told us that our economy has grown by 0.7% since its low point last year; that growth in the first quarter of 2010 was some £8 billion larger than it was in the final quarter of 2009; and that output is growing by about £88 million a day.
The National Institute of Economic and Social Research has also already estimated that output in the second quarter of this year could hit 0.7%. If that comes to pass, it will be no mean achievement, especially when our neighbours tell us precisely how hard it is to sustain recovery. In the first quarter of this year, our last quarter in office, growth in this country reached 0.3%. In Germany, it was lower; in France, it was lower still; in the eurozone, it was lower; and Spain, Ireland and Greece are all forecast to see negative growth this year. Labour is proud to be the party of the recovery, and the question that the Bill should have answered is, how do we guarantee the recovery’s future?
We are proud to have been the party that brought together a global response to the recession. Here in London, countries from throughout the world agreed a plan, including a £1.1 trillion support package, that helped to ensure the revision of global growth from 1.9% last year up to 3.5% this year. We are very proud to be the party that stopped the British banking system collapsing in the face of its exposure to melting international credit systems, and we are very proud to be the party that put in place here at home the most comprehensive recovery plan to protect people’s jobs from the axe, homes from repossession and employers from liquidation.
Sajid Javid (Bromsgrove) (Con)
The right hon. Gentleman quotes ONS statistics, but he will also be aware of how last week the ONS reported that, from peak to trough, the British economy declined by 6.7%—more than any other industrialised economy. Is he also proud of that?
Sajid Javid
I thank the right hon. Gentleman for giving me the opportunity to intervene again. The 6.7% decline was bigger than that of any other industrialised economy; no other economy racked up a debt, both visible and unofficial, at the rate that we did; and no other economy pumped in £200 billion of its own printed money, the results of which we still do not know. He might be proud of the results that he thinks have been achieved, but the full consequences of the Labour party’s actions over the past two or three years are not yet known and may be much worse than we know them to be today.
Mr Byrne
Let us come to that point directly. If we want to understand the difference between our parties, we need only compare the recession that we have been through in the past two years with the one presided over by the Conservative party. Unemployment in this recession is half what it was during the recession of the 1990s. Furthermore, repossessions are 40% lower and company insolvencies are running at about a third of the rate reached in the 1990s recession. We Labour Members believe that it is right to act to protect people’s jobs and homes and the firms that they work in.
Stewart Hosie
Much as I like the shadow Chief Secretary and much as he is doing a sterling job in attacking this new nasty Con-Dem Government, a wee bit of revisionism is going on here. The UK did not lead the way. The fiscal stimulus packages in the United States, France, Japan and even Germany predated the United Kingdom’s. If there were a bit more reality in this, there would be a lot more credibility to the attacks that the right hon. Gentleman is trying to level at the new Government.
Mr Byrne
It would be churlish of the hon. Gentleman not to acknowledge the role that the Labour Government played in bringing the G20 to London and agreeing a £1.1 trillion package of support, as well as the measures on international banking reform. All that ensured that whereas fairly low levels of growth in world trade and world economic improvement were projected last year, we are now looking at a significantly better picture. Surely he will acknowledge that.
Stewart Hosie
I supported fiscal stimulus; I still support fiscal stimulus when it is necessary. The question is not what may or may not have been spun at a G20 meeting, but why the Labour Government left the UK as one of only two G20 countries without a fiscal stimulus package in 2010. I welcome banking regulation, but given that Northern Rock began to collapse in the late summer of 2007, why will the real new banking regulation that we need still not be in place until the autumn of 2012?
Toby Perkins
I should like to bring my right hon. Friend back to what he was talking about—unemployment, housing, the impact on people and how the last Labour Government protected people on the ground. Is it not strange that there seems to be no acknowledgment from those on the Government Benches about how many extra people are in work and still have the homes for which they have worked so hard all their lives? There seems to be no acknowledgment from the Conservative party that that issue is worth worrying about. Perhaps that is because they were not the people who lost their jobs or were in danger of losing their homes.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I press hon. Members to make shorter interventions. The shadow Chief Secretary is being generous; may that continue.
Mr Byrne
Thank you, Mr Deputy Speaker.
I want to pursue the argument for a moment longer. The implication of the intervention by the hon. Member for Bromsgrove (Sajid Javid) is that somehow there was a cut-price way for us to have ensured the recovery, which is now under way in this country. Sometimes when I listen to Conservative Members, I cannot make out whether their preference is simply to have done nothing during the past two years or whether it is that we should have invented some kind of cut-price plan to kick-start the recovery. Sometimes I feel that there is an illusion on the Government Benches that we could have rummaged around in a Budget bargain basement and found a Ryanair, cut-price, no-frills plan that would have delivered the economic growth that this country is now experiencing.
Elizabeth Truss (South West Norfolk) (Con)
What we are criticising is how the debt was built up prior to the economy going into freefall. Public spending in many areas doubled, yet productivity did not increase. Between 1997 and 2007, productivity went up by 2.3% in the private sector, but fell by 0.3% in the public sector. What we had was years and years of waste.
Mr Byrne
Perhaps the hon. Lady could explain why the Conservatives supported our spending plans until 2008. As for public sector productivity, she will know as well as I do that if more medical staff are put on to nurse patients, one might get a higher survival rate and better care, but such outputs do not show up in the cold light of productivity statistics.
Alun Cairns (Vale of Glamorgan) (Con)
The right hon. Gentleman talked about an illusion, and we can trade statistics back and forth, but at the election the ultimate judgment came down to the British people, who judged that Labour had failed to regenerate the economy and offer a way forward. That was the ultimate judgment, as opposed to the rose-tinted spectacles that he appears to be looking through.
Mr Byrne
I am grateful to the hon. Gentleman for raising the question of mandates. If one thing is clear in the debates that we have had in the months since the election, it is that there is absolutely no mandate for the VAT measure in the Finance Bill. I would be interested to hear how he is explaining that to his constituents.
I do not believe—nor have I heard any explanation of this—that some kind of recovery plan on the cheap could have delivered the economic recovery that is now under way. In life’s difficult moments, one is always open to advice, but the truth is that if we had followed the prescription of the Conservatives, we could have kissed goodbye to the recovery, not least because our banking system would have collapsed, the cash points would have stopped, the dole queues would have spiralled, repossessions would have spiked, and Britain’s small businesses would have been submerged beneath a wave of foreclosure, bankruptcy and liquidation.
Mr John Redwood (Wokingham) (Con)
In August and September 2007, when I and some others were urging the Government to make more cash and liquidity available to the banking system to prevent the collapse of Northern Rock and others, why did they ignore our warning? Why did they lecture the banks about having got it wrong, instead of supplying reasonable amounts of money to see them through, and then bankrupt them as a result?
Mr Byrne
I seem to remember that the Government’s response to the banking system was opposed by the Conservatives when it came down to the substance of a vote. When legislation was brought before this House to accelerate the way in which the banks could be sorted out, the Conservatives voted against it.
In the Budget and the Finance Bill, the Conservatives should have centred their rationale on how the recovery can be sustained. In the debates on those measures, I think we have established that there is a consensus that the deficit has to come down. The price of dodging an economic doomsday was not cheap, and the deficit was bound to rise. However, when the shocks hit back in 2008, we had the second lowest debt in the G7. Between 1997 and 2007, we cut public sector debt from 42.5% of gross domestic product to 36% of GDP. Over the 10 years before the crisis, UK borrowing averaged 1.4% of GDP compared with 1.9% for the rest of the OECD economies. As a result, even amid the current expense, our national debt will simply rise in line with every other major economy.
We have learned something from the debates on the Finance Bill and the Budget about the disposition—the economic philosophy—not only of the Conservatives but of the Liberal Democrats. They may feel that the price of recovery was not a price worth paying, but they cannot ignore what economic statistics are now saying about how the recovery is improving the position of the public finances. In March, my right hon. Friend the shadow Chancellor told the House that the deficit this year was £13 billion better than expected for 2010-11; in June, the Office for Budget Responsibility said that it was £8 billion better even than that. Since February, £123 billion has been knocked off projections for national debt, and that is before we sell our shares in the banks. The Government’s budget was underspent last year to the tune of £5 billion according to Treasury figures that we saw a week or two ago, and interest rates were falling in the months before the election.
When we examine the savings generated by falling unemployment, we can really see the wisdom of a strategy that hinges on growing our way out of recession. Our policy all along was to act to ensure that we kept unemployment down. Not only did that policy work well, and not only was it morally right, but it was economically wise. Our policy has delivered unemployment that is 2% lower than either in America or across the European Union. In the Budget in 2009, we had to assume that unemployment would stick at about 2.44 million. A year later, in the 2010 Budget, that forecast had fallen by 700,000 people to 1.74 million. That meant that over the four years from 2010 to 2013, there would have been a fall of £14 billion in the unemployment benefit bill, as well as an incalculable saving in human misery.
With that inherited recovery in place, the question that the House should ask in relation to the Finance Bill is what action should be taken to speed up the recovery. How can we guarantee the recovery’s certainty and begin to marshal investment into rebuilding an economy that is better balanced? Instead of providing any answers to those questions, the Budget and the Finance Bill will slow the recovery down and put more people on the dole. They offer a strategy for rebalancing the economy composed in equal measure of a wing and a prayer.
Nothing better illustrates the gambling instincts of this Government than the fast cuts to public sector jobs and the depression of consumer demand through VAT. With the most breathtaking casualness, they are prepared to put our hardest-fought recovery at risk. With such an unlikely scenario for growth in his pocket, one would have thought that the Chancellor might just hedge his bets a little and ensure that the private sector was creating jobs at some pace before bringing forward plans to sack up to 800,000 public servants. One might have thought that he would have some regard for cities such as my home town, Birmingham. It already has high unemployment, but if the Chancellor cuts 9% of the 156,000 public sector workers there, it will potentially rise by 14,000 people. That will not help the recovery in Birmingham; it will act as a drag anchor on recovery. That story can be told in towns and cities all over the country.
Owen Smith (Pontypridd) (Lab)
On precisely that point about the different levels of private sector job creation and public sector job losses around the country, was my right hon. Friend worried to see the Oxford Economics report of last week predicting that in Wales, for example, just 4,000 jobs will be created, which represents 0.3% growth over the next five years? That will lead to significant net increases in unemployment in Wales and the report predicted that we would not see a return to the current levels of employment until 2025. The picture is similar in the west midlands and other areas across the country.
Mr Byrne
My hon. Friend highlights the second risk that I wish to move on to. With risks so great, and talked about so freely and with such casualness, one would have thought that at the very least, the Finance Bill would contain one or two more measures to encourage the growth of domestic demand instead of measures to try to tax it back into recession.
The truth is that the Bill attacks domestic demand with such viciousness that the country is now hoarding its silver at an almost unprecedented pace. Britain’s families and businesses now have so little confidence in the future of the economy that rather than make the odd investment here and there, they have tucked away something of the order of £130 billion in the bank as the household saving rate has escalated. Britain is now saving money that is not being spent either in the shops or on building new factories or production lines. The Budget has not restored confidence but is draining it fast.
The Economic Secretary to the Treasury (Justine Greening)
Will the right hon. Gentleman give way?
Justine Greening
Is the right hon. Gentleman saying that he thinks the savings ratio is too high and that we should encourage people to go out and spend, spend, spend even if they cannot afford it?
Mr Byrne
No. I am saying that the country’s investors now have so little confidence in the economic plan that they would rather save their money than dare to invest it in productive capacity and growth for the future.
Let us look at some of the measures that show the decline in confidence. The Bank of England says that mortgage approvals fell in June; last month, the consumer confidence index fell for the first time in a long time; and yesterday, Rightmove told us that house prices have been cut for the first time this year. The Budget and the Bill are putting Britain’s recovery in the slow lane. The greatest irony of all is that we must all pay more as a consequence.
Sammy Wilson (East Antrim) (DUP)
The right hon. Gentleman mentioned two aspects of aggregate demand—consumer spending and Government spending—but is he also concerned that the Government are depending partly on an increase in exports, because all the indications are that the markets in Europe and America will not be as buoyant as was assumed? Therefore, all three major areas of aggregate demand will be subject to downward pressure.
Mr Byrne
The hon. Gentleman makes an extremely good point. The evidence on that is mixed. The CBI industrial production survey, which was published earlier this afternoon, shows that manufacturers reported that the second quarter of this year was good and that they have a degree of confidence in exports. However, the problem is that the OBR is projecting a £100 billion increase in exports over the next four or five years. That is the equivalent of our exports to America tripling, our exports to China going up by something like 20 times, and our exports to India going up by something like 40 times. That may well come to pass, but it is safe to say that very few people would bet on it. That is why the Opposition believe that the Government should do a little more to nurture both domestic business investment and domestic demand.
The alternatives for reducing the deficit that we have rehearsed in the past couple of weeks bear a final word this afternoon. I want to return to the explanation of the difference between the scorecard projections for tax growth and what the OBR said would come through the door, which the Exchequer Secretary struggled with earlier. The point centres on how much growth will contribute to paying down the deficit over the next four years. The Labour Government’s deficit reduction plan projected that the deficit would be reduced by something of the order of £78 billion over the next four years, and the OBR inconveniently told the Chancellor that we were on course to deliver that. That plan involved £57 billion-worth of discretionary action, which was set out in detail in chapter 6 of the March Budget—£19 billion in tax increases and £38 billion of spending cuts. However, £21 billion of the deficit was projected to be closed by the economy returning to growth, with higher tax receipts and lower benefit bills.
The June Budget appears to hit growth so hard that £9 billion of extra tax is necessary to make good the effect of lower growth. That is the price of slowing the recovery. The Liberal Democrats are awfully pleased that they got an increase in income tax thresholds, and I congratulate them on securing that concession, but the truth is that they have been sold a pup. They could have had the increase in the threshold they originally wanted if we did not have to pay for the cost of lost growth.
The Budget scorecard on page 40 of the Red Book says that by rights, the Chancellor’s decision ought to bring in an extra £8.2 billion in tax by 2014-15, but the OBR says that only £3.1 billion will actually come through the door, because growth will be depressed so much by the Budget. The Red Book goes on to say—on page 97, table C9—that something like £9 billion in extra taxes and spending cuts are necessary because of this go-slow Budget. In other words, the Government have almost halved the contribution of growth to closing the deficit. It is now quite clear to the House that although the Government may have lost their monetarists, they have certainly not lost their masochists.
Sajid Javid
The right hon. Gentleman was comparing the growth forecast of the previous Government to that of the current Government. Is not the truth that the forecasts of the previous Government were made up by Ministers whereas the forecasts we are looking at today were made up by the independent OBR? He talks about selling a pup, but was not the pup the forecasts of the previous Government?
Mr Byrne
I hope that at some point in his future illustrious career in this House the hon. Gentleman has the chance to put that argument to the chief economist of the Treasury, David Ramsden. The growth forecasts that were published in our Budget were set out by Treasury civil servants. Like me, the hon. Gentleman will have noticed that the rebound in growth that was projected by the then Chancellor—now the shadow Chancellor—was very much in line with the rebound in growth that we saw after recessions in the 1980s and 1990s, but it was supported by far stronger monetary policy action. We were comfortable with the growth forecasts that we presented. The hon. Gentleman will have to reconcile himself in the months to come to the impact of slower growth and the fact that we are now having to put taxes up—something that I always thought the Conservatives opposed—because demand has been depressed to such an extent.
Andrea Leadsom (South Northamptonshire) (Con)
Only this morning in the Treasury Committee we were talking with Sir Alan Budd and some of the members of the OBR, who made it clear that their role in challenging Treasury forecasters was strong and robust. They see the role of the OBR—as confirmed by Dave Ramsden when he was interviewed—as extremely positive. In fact, Mr Ramsden said that the OBR has achieved, in transparency terms, 20 years of progress in eight weeks.
Mr Byrne
The hon. Lady is right to underline the virtues of the OBR. I, too, welcome it, which is why it is so regrettable that it moved forward its press releases and gave the appearance of supporting the Prime Minister through what was a sticky Prime Minister’s questions. I look forward to the day when Members of Parliament have the right to appoint the leadership of the OBR, just as I look forward to the day that we have the right to appoint leaders of the Office of Tax Simplification, who—we learned this afternoon—appear to have been appointed on some kind of whim.
My final point is the basic failure of fairness in the Bill. The truth is that the Government were so embarrassed—perhaps some of their members were even slightly ashamed—that the Budget was so regressive that they only dared describe its effects flattered by Labour measures and three years before the full horrors take effect. We did not hear a word from the Government about the £8 billion hit that our country’s pensioners will take in new VAT bills. Nor were we told about the £70 million of extra, irrecoverable VAT that our charities will now pay.
We gave both the Conservatives and the Liberal Democrats a chance to vote for an amendment to delay the VAT increase until a plan was in place to compensate pensioners and charities fully, and they voted against it. The public will draw only one conclusion—that this Government simply do not care. If I am not mistaken, the entire contribution of the big society bank that Labour created will be wiped out by the VAT increase—[Interruption.] I hear protests from the other side of the House. If they read the March Budget they will see clearly set out the measures to recycle dormant accounts into the social investment wholesale bank. The proposals appeared under that heading in many manifestos.
What a cruel con trick to perform on some of Britain’s most deserving. Yesterday, the Prime Minister told us that he wanted to put some oomph into Britain’s communities. Many of us would agree that it was a phrase worthy of the Mayor of London. This Budget tells us that the only thing going into communities from this Government will be the boot. That is why we will campaign up and down the country for a proper plan for growth and jobs, and for proper protection from this Budget for our pensioners. It is also why we will oppose this Bill in the Lobby tonight.
Matthew Hancock
I am grateful for the opportunity to pay tribute to the then Chancellor, who expressed his gratitude to the then Opposition Conservative party for the support it gave him during September 2008. That is often forgotten on the Labour Benches.
On the evidence, one of the central questions to which we return time and again in this debate is whether there is a contradiction between dealing with the deficit and getting growth. It is clear that the Labour Front-Bench team think that those two things are entirely in contradiction. However, I want to consider the evidence for whether that is true. We all know that, in the long term, tackling the deficit is unavoidable—occasionally that is even acknowledged by those on the Labour Front Bench. Any child born is born with £23,000 of debt, and under the former Government’s plans, interest payments would have amounted to £70 billion a year, which could otherwise have been spent on important public spending.
There is also a question, in the shorter term, of whether fiscal responsibility can lead to growth. I was interested in this, so I went to look at some of the evidence. There is a very good literature review by Alberto Alesina, who, having described the argument that there is only either fiscal consolidation or growth, wrote that
“the accumulated evidence paints a different picture… Many even sharp reductions of budget deficits have been accompanied and immediately followed by sustained growth… These are the adjustments which have occurred on the spending side and have been large, credible and decisive.”
If the shadow Minister thinks that the Budget was large, credible and decisive, I would be happy to hear from him.
Mr Byrne
I understand the debating technique that the hon. Gentleman is adopting—trying to set up a straw man in order to knock it down—but our deficit reduction plan contained £57 billion of decisions relating to fiscal consolidation alongside £22 billion of growth. Fiscal consolidation was not posed as an alternative to growth; actually the two things were seen very much as twins.
Matthew Hancock
Unfortunately, those from whom the previous Government had borrowed so much did not see a credible plan from the Labour party. That is why we have had to introduce the emergency Budget, so that we could put that credible plan in place. Since the election, there have been downgrades in the debt of many of our competitors, so it is critical that we have managed to put that triple A rating on to a sustainable basis.
I want to go through three reasons why a fiscal consolidation can lead to growth. The first, of course, concerns interest rates. The long-term interest rates at which many companies around the country borrow—they include those in my constituency, and no doubt those of all other Members—have fallen. In fact, since the election the 10-year rate has fallen from 3.88 to 3.44%, which represents more than a 10% fall in the funding costs of companies up and down the country. Of course, that was not taken into account in the two productions of the Office for Budget Responsibility analysis, which is why a direct comparison of the two is, as stated by Sir Alan Budd, misleading.
Matthew Hancock
My hon. Friend is getting a reputation for making extremely good interventions, and that was one of them. Fiscal consolidation also means that interest rates can be held lower for longer by the independent Bank of England, which is a second important channel through which economic growth can be supported, and not opposed, by fiscal consolidation.
Mr Byrne
I am following the hon. Gentleman’s argument with great interest. He will have worked at the Bank of England for long enough to be able to read bond yields. Like me, he will have noticed that they were actually coming down from late 2008, down to a low point in February, not least because there was a flight to safety in the European bond markets. As people began to worry about what was going on in the eurozone, they chose to transfer to safer assets, including UK gilts. That was because there was credibility in what was the fastest and clearest deficit reduction plan of any country in the G7.
Matthew Hancock
Of course, the bond market could see a Conservative—or coalition—Government coming, and that is exactly what happened. I will say this to the right hon. Gentleman: when there is a flight to safety, I would rather it was to British bonds, not to bonds overseas, which is what could easily happen if we did not have a credible policy.