The Economy

Debate between Margot James and Ed Balls

Wednesday 22nd June 2011 Commons Chamber

[Ed Balls]

I have taken lots of interventions and I am coming to my conclusion.

That is why we have consistently said that the Chancellor should have a plan B. At the end of August 1992, three weeks before Black Wednesday, the then Prime Minister and his then special adviser stood in front of the Treasury at 8 am and said:

“There are going to be no devaluations, no leaving the ERM. We are absolutely committed to the ERM. It is at the centre of our policy. We are going to maintain sterling’s parity and we will do whatever is necessary, and I hope there is no doubt about that at all.”

That was almost certainly written by the current Prime Minister. Hon. Members have to learn these lessons. It is true, as my hon. Friend the Member for Luton North (Kelvin Hopkins) said a moment ago, that back then the pound was constrained by a fixed exchange rate. It was very hard for the Prime Minister and the Chancellor of the day to change course, even though they could see that their policy was not working. Had we joined the euro—and as we have all said, thank goodness we did not—that would have been an even greater constraint on UK economic policy, but neither constraint exists now. The objectives for monetary and fiscal policy have lain squarely in the Chancellor’s gift and this is the fundamental problem: he has made a political decision to set a political timetable for a political goal that defies economic logic, and the evidence is growing week by week that he has got this wrong. The lesson of monetary and fiscal policy too, over the past 20 years, is that changing course when things are not working is not a knee-jerk reaction and does not damage credibility. It is the only way of being in control of our destiny and averting the crisis being forced on us.

Let me quote some wise words:

“The weak thing to do is just to keep ploughing on and say, ‘I can’t possibly change, because I might have a difficult time at a press conference.’ The tough, strong thing to do is say, ‘Yes, we can make these plans better’.”

That is what the Prime Minister said yesterday, explaining the U-turns on sentencing and the NHS. He has obviously learned some lessons from his time as special adviser to Norman Lamont. My only plea today is that the Chancellor starts learning the lessons of history too. The cautious thing to do is not to plough on and hope for the best, but to act now before we lose more ground. Unlike Norman Lamont, who was tied to the exchange rate mechanism, the Chancellor can choose. He does not have to box himself in this way, so stubbornly. He does not need to make the Major-Lamont ERM mistake all over again.

[Margot James (Stourbridge) (Con)]

The right hon. Gentleman referred to the previous Government’s policies when they embarked on a very timid programme of tax increases and public expenditure cuts a year and a half ago. Does he not accept that that was completely inadequate then and that the only reason it was accepted was because the international markets knew that there was a general election coming and that his party was way down in the polls? They lived for a better day.

[Ed Balls]

I have been, in a friendly way, critical of the Chancellor’s engagement and participation in international affairs and matters of global economic management, but he does go to the meetings and sign up to the communiqués. As the Chancellor in June 2010, after the general election, he went to the G20 and signed up to the communiqué that said that Governments should halve the deficit in the next four years, which was precisely the plan we had, which they tore up. We are not going to take lectures from the Conservatives on credibility. As I have said, the credible approach is not to plough on regardless when things are not working but to change course before it is too late.

This is my conclusion.