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Finance Bill

I see that the hon. Gentleman is nodding. To move from a £100 billion surplus to the current break-even situation, with the possibility of going below the waterline and missing the golden rule altogether, is a significant turnaround. Something more profound needs to be said about the Government’s golden rule and sustainable investment rule, which I welcome in theory. They are right in principle and conceptually, but the question is whether they are being applied effectively, or so loosely that they do not represent the rigorous economic discipline that they purport to represent. If the latter is so, that is very dangerous for the long-term performance of the British economy and—once the cat is out of the bag—for the credibility of its management. The golden rule says that the current budget must be balanced through the cycle. That involves a number of assumptions in deciding what the cycle is, which I shall not go into, but one’s immediate reaction is that under such a rule, if the economy is growing above trend, the Government will be running a surplus, and if it is growing below trend, they will be running a deficit. So reduction in demand during a downturn is compensated by greater Government spending, and vice versa. That is the classic use of fiscal policy for stabilisation, but one need only look at what has happened since 1997 to see that it is not the golden rule on which this Chancellor bases his economic management. When the economy was growing above trend in the late 1990s, public spending was growing at slightly less than the trend rate of the growth of the economy, which was 2.5 per cent. Then, when an election was about to be held in 2000, the Government suddenly took off the brakes, having been very fiscally prudent until then, and projected annual rates of expenditure growth of 3.2 to 3.5 per cent.—way above the economy’s trend growth rate of 2.5 per cent. Last year, the year before and this year growth in the economy was significantly above the trend rate: 3.1 per cent., 3 per cent. and 3 to 3.5 per cent.—that is the projection for the current financial year in the Red Book. Nevertheless, there were substantial deficits. That must be contrary to any normal understanding of the golden rule. However, the Chancellor does not have a normal understanding of the golden rule. His definition of it is different: if we have had surpluses earlier on within the cycle, we can draw on those later and run up whatever deficits we like. As long as, when we get to the end of the cycle—whatever we decide is the end of the cycle—we have not drawn down all those surpluses, we balance the current budget through the cycle. That is simply not good enough for several reasons. The first is that we never know when the end of the cycle is, so it is a pretty irresponsible way to manage the economy. We do not know over how many years to come we will still have, in practice, those accumulated surpluses to spend. We may think that the cycle will come back to the trend rate of growth at the end of 2005, but we may be wrong about that. No one knows, so that is not a responsible policy. The Government have not properly focused on the other big problem with that approach to the golden rule. If the golden rule is taken to be—I am sorry, Mr. Deputy Speaker, I am not feeling very well this afternoon. I think I may have to interrupt my speech. I am so sorry.