Economy: Rating Agencies

Lord Eatwell Excerpts

Wednesday 27th February 2013 Lords Chamber

[Lord Deighton]

My noble friend raises the question of monetary policy. We have had a number of debates on creativity to restore a focus on growth and not purely on short-term inflation targeting. All these ideas are welcome and demonstrate the importance of generating growth. We should have the debate but be very focused on sticking to a monetary policy that understands the importance of the medium-term inflation target, while accepting a degree of flexibility around output.

Some specific measures that the Government have taken, such as FLS, were recommended in the Moody’s review as a very positive sign, so other ideas should certainly be debated and considered.

[Lord Eatwell]

My Lords, could the Minister tell the House whether it is better to borrow to fund the fiscal costs of negligible growth or to fund the expansion in investment and growth?

[Lord Deighton]

My Lords, I am not sure that I accept the specific question of my noble friend. It is better to have an entirely consistent strategy of fiscal consolidation to ensure that we regain our credibility in the financial markets so that we can continue to borrow at these historic low rates. If we have a choice between funding capital spend—let us call it that—and current spend, all other things being equal, I would choose capital spend. We saw that in the Autumn Statement, when the Government switched £5.5 billion, if my memory is correct, into financing capital spending because that yields better to improve the growth process. However, it all needs to be done in the context of balancing other important consumer and political objectives.