Global Economy

Michael Fallon Excerpts

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

We are not proposing for a second to change our deficit reduction target. The target is a structural budget deficit target and was deliberately set as such. The reason we set out those plans in the emergency Budget and went beyond the previous Government’s mantra of halving the budget deficit in four years—not that they had actually written in the proposals to do that—was because on the day we came into office our country’s credit rating was on a negative outlook for a downgrade. Our market interest rates were tracking Spain’s and everyone from the Governor of the Bank of England to the IMF and the CBI was saying that the previous Government’s budget deficit plan was not credible. If we had stuck with that plan and even filled in the blank spaces, we would now be part of the sovereign debt crisis whirlwind that is engulfing other countries.

[Michael Fallon (Sevenoaks) (Con)]

Before there is any further attempt to rewrite history, can the Chancellor confirm again that until last year’s emergency Budget and spending plan this country’s triple A rating was on negative outlook and was restored to stable only through the measures he took last year? Is not the real lesson of the United States that any country that goes off its fiscal deficit reduction plan can suffer a downgrade, with all the damage to jobs and prosperity that that entails?

[Mr Osborne]

My hon. Friend is absolutely right. In January last year the largest bond investor in the world said that UK gilts

“are resting on a bed of nitroglycerine.”

Today I could read out a whole string of comments from market participants saying that the UK has been a safe haven in this sovereign debt crisis because of the decisions that we took.

Standard & Poor’s, the rating agency that has just downgraded the United States, took the United Kingdom off “negative outlook” and reaffirmed our triple A credit rating. The practical consequence of that is much lower interest rates. If we pursued the policy proposed by the Opposition of more spending and more debt, the immediate response would be higher interest rates which would kill off any recovery. That is why such a policy is economic madness.