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Adjournment (Whitsun)

I do not think so, but I might have a debate with my right hon. Friend the Chancellor about it. We should perhaps have a higher level of gross borrowing. We have low levels by international standards, and provided that he borrows for investment and it is fundable—in the sense of the return on the borrowing—it would not be a problem. If one simply wanted to borrow for current spending, it might be a problem and could lead to budget deficits and even inflation. One has to keep current spending at an appropriate level. However, borrowing for investment in the long term, provided it can be funded, is not a problem. It is important to separate current spending and capital spending when it comes to borrowing limits. The house price surge has started to reach its limits. People are warier about borrowing against the rising value of their houses, and that is inevitable. We pull in our horns when we think that house prices might not rise much more. We say, ““Well, we’ll put off buying the car this year and we won’t have so many meals out.”” We can choose not to spend, but if we all did that, we could quickly move into a recession or at least an economic slowdown. That is what we have to avoid, and we should look to the instruments of macroeconomic policy to ensure that economic demand is sustained in the long term at an appropriate level to maintain employment levels and growth. Those instruments are monetary policy, fiscal policy and the exchange rate. On monetary policy, the chief economist at Capital Economics said that the Bank of England will soon have to cut rates below the 2003 record low of 3.5 per cent. to ensure that monetary policy is not too tight. I was a little concerned when the Chancellor chose to reduce the target for the RPI(X) measure of inflation from 2.5 per cent. to 2 per cent. I see nothing wrong in raising that target to 2.5 per cent. again as a 0.5 per cent. inflation difference is not significant compared with the inflation rates that we have had in past. If the economy would be damaged by keeping the target at 2 per cent., but would be healthier if it were 2.5 per cent., I would choose a 2.5 per cent. target. The record of interest rates since 1997 shows that the average level of inflation—the RPI(X)—over that period is about 2.5 per cent. It is certainly nearer 2.5 per cent. than 2 per cent. We have had a strong economy in that period and there is nothing fundamentally wrong in having a slightly higher inflation target. We became terrified of inflation because of high rates, but the era of high inflation is long past. The economy is not now naturally inflation prone and we could easily adjust the tight inflation targets slightly. The second instrument is fiscal policy. As the economy moves into recession—if we are approaching that part of the cycle—it is natural to spend more. Indeed, one has to spend more if unemployment starts to rise and tax revenues start to fall. It is a natural tendency to spend more during that period, but I urge my right hon. Friend the Chancellor to use public spending, as we have traditionally done in the past, to ensure that the economy keeps growing and unemployment stays low. We have been petrified of public spending because it did get out of control when we had such high levels of unemployment in serious recessions. We had two such recessions during the period of Conservative Government and, inevitably, public spending got out of control. It is inevitable because the unemployed have to be looked after and tax revenues collapse. We are not in that situation now and I urge the Chancellor to use public spending wisely as a tool to ensure that we keep the economy growing. Finally I come to the exchange rate. Fortunately we are not in the eurozone, so we can adjust our exchange rate to meet the needs of our economy. The exchange rate is too high. The evidence for that is our structural trade deficit. If it is permanent and goes on year after year, something is wrong with the exchange rate: the price at which we sell our exports and the price we pay for our imports. We have reached the point when we should think seriously about intervening in the markets to bring down the exchange rate relative particularly to other developed nations. There is much talk about competitiveness. It can be affected by many factors, but above all by the exchange rate. If the exchange rate is, for example, 20 per cent. too high, clearly one is less competitive. I believe that it is too high and we should now intervene. There are techniques of intervention that could bring down the exchange rate, which were suggested by, among others, Gerald Holtham, former director of the Institute for Public Policy Research, such as intervening in the bond markets. Our great advantage in fiscal policy, monetary policy and the exchange rate is that we have control over our own economy. That is because we are not a member of the eurozone. The Chancellor has been wise to steer us clear of it for eight years. During the general election the Prime Minister said that he thought it unlikely that we would join during this Parliament. Even he has accepted that it is not sensible. It is certainly not possible because people will never vote for it. Our economy is relatively strong compared with that of Germany, which has the opposite problem. It cannot control its economy because it has no control over its macroeconomic levers. If it could disentangle itself from the euro and operate those levers, it could recover and perhaps even build a healthy economy like ours, with full employment and strong growth. Indeed, if I were a Back-Bench social democratic member of the Bundestag, I would urge the Chancellor to disentangle Germany from the euro and re-establish the deutschmark. It would be a sensible policy and can be done. Currencies can be separated. There is evidence for it. When the Czech Republic and Slovakia were set up as separate countries, they established separate currencies. They varied their values with each other. A closer example is the Irish punt. It used to be tied rigidly to the pound, but then it became a separate currency and now it is in the euro. There is absolutely no reason why the German economy could not disentangle itself from the euro. Understandably, there would be certain political ramifications. It would cause a few shockwaves round Europe, but the policy would be a sensible one. If Germany has a strong economy again, the whole of Europe would be stronger economically. It might even have an economy as strong as that which has been built on the good sense of our Chancellor of the Exchequer.