Charter for Budget Responsibility

Stewart Hosie Excerpts

Tuesday 13th January 2015 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

I was struck by the shadow Chancellor’s contribution. His criticism of the charter appeared to be that it was not particularly clear when some of the Government’s targets or aims might be met—not an unreasonable criticism, although I was reminded that the last Labour Government used to try to balance the books over the economic cycle and then change the start time of the economic cycle to make the numbers fit. However, that is ancient history.

What is also history is that five years ago this month on 5 January, the then Labour Government debated their Fiscal Responsibility Bill. It set out the framework that they would work within to halve the deficit in a four-year time frame. This Government went further and announced that they would eradicate the entire structural deficit within a single five-year Parliament, and the following year the first charter for budget responsibility was introduced. To meet the provisions of that charter, the Government said that debt would begin to fall as a share of GDP by this year, 2014-15, the current account would be in balance next year, 2015-16, and public sector net borrowing then would be reduced to £20 billion. We know now from the autumn statement, given one month ago, that debt will not now fall as a share of GDP until 2016-17 at the earliest, the current account will not be in the black until the following year, and borrowing in 2015-16 will not be the £20 billion promised, but nearly four times that at £75 billion. The new targets are the essence of the new charter.

The Chancellor and the Government have failed to meet a single one of the targets that they set for themselves. The policy of a fixed-term approach to deficit reduction strangled recovery in the early years of this Parliament, and with £75 billion of cuts and tax rises to come, the inescapable conclusion is that austerity has failed. So today’s measure is less about the purported updating of the charter for budget responsibility and more about providing cover for a failed policy of fixed-term deficit reduction; cover for a plan for further attacks on the welfare budget, which are in the charter; and cover for a plan to balance the books on the back of the poor when public spending goes back to 1930s’ levels.

[Jonathan Edwards]

Is it not the case that we are living in very uncertain times in terms of the global economy? As the right hon. and learned Member for Rushcliffe (Mr Clarke) said, we could have a Greek exit from the eurozone in a matter of weeks, with all the turmoil that would create for the eurozone, and the direct impact that would have on the wider UK economy. With that in mind, would it not be more advisable and wiser to have a more flexible approach to fiscal policy?

[Stewart Hosie]

That is absolutely right. I will answer that question directly. Instead of the provisions in the charter, we should be tackling the deficit reduction and the debt reduction in a different way. It should not be a fixed-term approach; it should be a principles-based approach based on the medium term. It has been proven to work in New Zealand, and I want to refer to the way in which it goes about that. It says that the first principle should be about reducing debt to a prudent level, where the Government of the day specify what is or is not prudent, depending on the circumstances that they face—precisely the point that my hon. Friend made. The second principle should be that once debt is reduced, the Government should maintain a balanced budget over the medium to long term. That would not prevent any Government from implementing the steps they believe are necessary to achieve the long-term objective of having a prudent level of deficit, but it would mean that it would happen, on average, over the medium to long term, rather than arbitrarily specifying one cycle or one Parliament.

The third principle says that the Government should achieve and maintain a level of net worth that provides a buffer against unforeseen future factors. The fourth principle calls on the Government to manage fiscal risks prudently, and the fifth is that the Government must pursue policies consistent with a reasonable degree of predictability about the level and stability of tax rates. That is incredibly important, because the tax system, tax rates and tax certainty, which have not yet been mentioned today, are a vital component of fiscal stability and fiscal responsibility. In the sense that we have seen tax yields reduce, it is all the more important to get that bit right.

[Charlie Elphicke (Dover) (Con)]

The hon. Gentleman talks about fiscal stability and fiscal responsibility, but let me take him to task on the plans the SNP made, based on the price of oil, and what has happened to the price of oil. Does that not show that what the SNP has to say on these matters is not worth listening to?

[Stewart Hosie]

That is a ridiculous argument. If one thinks that those oil revenues, which are most certainly falling, are causing a big hit to the UK tax yield, all the more reason, one would have thought, to allow a degree of flexibility in the economic plan so that the overall strategy of deficit consolidation and debt reduction is achieved, rather than the facile political comment from the hon. Member for Dover (Charlie Elphicke).

Before I move to the second and third criticisms of the plan, on the overall plan for deficit consolidation and our opposition to it being on a fixed-term basis, when the New Zealand finance committee looked at alternative models—rigid, straitjacketed models—it made a number of interesting observations. The committee said that there was no solid theoretical justification for any particular fiscal target to be maintained over a period of time, and that judgments on the appropriate level of fiscal aggregates vary over time and depend on the prevailing economic circumstances. A fixed-term target with a fixed objective cannot do that.

Having looked at other countries, the committee said that their experience of legislated targets suggests that there are substantial risks attached to their use. In particular, rigid adherence can seriously distort decision making and, unless carefully handled, minor variations from target can result in significant but unnecessary damage to credibility. The committee went on to observe, in the context of the inherent inflexibility of a fixed target system, that it

“makes it difficult for fiscal policy to respond appropriately to the inevitable volatility of economic circumstances.”

Given that we have seen, and hon. Members have commented on, the eurozone crisis, the Cyprus banking crisis, the Irish bank bail-out and other issues, to put this country back into a straitjacket of a policy which has failed so far, ignoring the possibility that similar shocks could occur in the near and medium-term future, is silly and wilful. It is most certainly a political dividing line which we will not support.

Apart from its inherent inflexibility, our second criticism of the measure is that it sets in concrete a further attack on welfare budgets. With 22% of Scottish children, 11% of Scottish pensioners and 21% of working age adults in poverty, to launch a further attack on welfare at this time under the guise of amending the charter for budget responsibility is simply wrong. Thirdly, to set out a plan for future discretionary consolidation, on which the charter is predicated, which changes the ratio of cuts to tax rises from 4:1 to 9:1 to try, in effect, to balance the books on the backs of the poor is completely wrong.

We do not believe that anyone genuinely opposed to austerity could support the measure tonight. We do not believe that anyone who is genuinely opposed to the draconian changes to welfare can support this Government tonight. We do not believe that anyone who is opposed to trying to balance the books on the backs of the poor and take public spending levels back to those of the 1930s can support this Government tonight. My right hon. and hon. Friends and I will oppose the measure tonight.