Public Expenditure: Deficit Reduction

Lord Barnett Excerpts

Tuesday 6th September 2011 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government how much public expenditure has changed in the Chancellor of the Exchequer’s deficit reduction plans through the use of the flexibility built into his plans.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government’s fiscal mandate targets a cyclically adjusted aggregate to allow some fiscal flexibility at a time of economic uncertainty and to allow the automatic stabilisers to operate in full. Automatic stabilisers are those features of the tax and spending regime, such as unemployment benefits, that vary with the economic cycle and so act to stabilise the economy. The forecast for total managed expenditure by 2014-15 increased from £737.5 billion in Budget 2010 to £743.6 billion in Budget 2011.

[Lord Barnett]

The noble Lord forgot to mention that he apologised recently for having denied that the Chancellor had said in terms that he had flexibility built into his plan. I assume that he is now admitting, despite all the figures that he has just given us, that that is the case. Therefore, should the Chancellor not be using that flexibility in the current economic circumstances? He said recently:

“The break-up of the euro would be economically disastrous, including for Britain”.

That seems all too likely at the moment. Given the lack of growth in the United States and Europe, is this not a good time to use that flexibility, rather than all that stuff that he does not believe in himself?

[Lord Sassoon]

I do not know to which “he” the noble Lord is referring, whether it is me or my right honourable friend the Chancellor, but we all believe in it and we are sticking to it. However, as I have explained, the cyclically adjusted nature of the mandate which the Chancellor has set means that, in times of economic uncertainty, factors such as varying levels of employment and inflation feed through so that the economy benefits, for example, from increased social security benefits and we do not in some slavish way have to cut back on other expenditure. The flexibility is there for very good reasons and it is operating.