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Fiscal Responsibility Bill

My Lords, I strongly support the remarks made by my noble friend Lady Noakes. I will divide my own remarks into two parts, the first on the Bill and the second on fiscal responsibility. The only connection between the two is an inverse one: the appearance of this absurd Bill is nothing more than a pathetic political substitute for the much needed exercise of genuine fiscal responsibility. I turn first to the Bill. I am all in favour of setting out medium-term fiscal projections and ambitions. It would be very odd if I were not, for these were an integral part of the medium-term financial strategy that my noble and learned friend Lord Howe, who I am glad to see in his place today, and I launched some 30 years ago in March 1980. The MTFS was a much more substantial affair than this wretched Bill. A declining path for public borrowing was only part of it. There was much else besides, including public expenditure projections over the ensuing five years, about which the present Government are conspicuously silent. It was also, unlike this Bill, economically literate, not least in its discussion of the effects of the economic cycle on public finances. This ridiculous Bill, which is only marginally less absurd than if the Government had introduced a Bill to impose a statutory duty on themselves to provide good government, is touted as a means of improving accountability. This was also one of the objectives—but by no means the only one—of the medium-term financial strategy, but there are two important differences. First, the MTFS was introduced in the first year of a new Government, whereas this comes before us in the dying months of an old and discredited Government. Secondly, we chose not to dress up the accountability which published projections provide in a Bill in which the Government impose a statutory obligation on themselves, with no penalty of any kind for non-performance, as my noble friend Lady Noakes pointed out. That does nothing whatever to improve accountability but merely makes a mockery of the rule of law, which is quite a serious matter, as I think noble Lords on all sides of the House would accept. Before I leave the past, perhaps I may be permitted to remind noble Lords of my own exercise of fiscal responsibility—““been there, done that””, as they say—conducted, I may add, without any legislative vehicle of this absurd kind. During my own six-plus years as Chancellor, public expenditure as a share of GDP declined by 8 per cent, and I am using figures which include no help from privatisation receipts. Incidentally, it should be noted that we called it by its correct name of ““expenditure”” rather than ““investment””. In no other six-year period within living memory, either before or since then, has a decline of this magnitude been seen, nor did any other country at that time achieve anything similar, which demonstrates that this was not a cyclical phenomenon. It was achieved by holding the growth of public spending in real terms down to little more than 0.5 per cent a year. As spending on several programmes, such as health and defence, rose by significantly more than that, it meant that elsewhere there had to be very considerable cuts. However, it was done, and the result was that the public finances went from deficit into surplus, and public sector net debt fell to less than 28 per cent of GDP, the lowest within living memory. It now stands at roughly twice that level and is rising fast. On the Government’s own projections, it will move to more than 70 per cent over the next two years. According to the latest report by the OECD, in all its 28 member countries, public sector borrowing as a percentage of GDP in the UK was exceeded last year only by Iceland and, by a whisker, Greece. This year, it reckons that UK public sector borrowing will be the highest in the entire OECD. That brings us to the crisis we now face and the urgent need for real fiscal responsibility rather than this pathetic paper substitute. I address these closing remarks chiefly to the leadership of my own party, which I hope will find itself in office in some 12 weeks’ time, as I have long given up hope of any fiscal responsibility from this profligate and disastrous Government. It is of the first importance not to be seduced by the Augustinian prayer, ““Lord, give me chastity and continence, but not yet””—the mantra of the neo-Keynesians, to which the Minister implicitly cleaves. It is no accident that at no time since the war has fiscal retrenchment ever been embarked on too soon. The argument for delay is always seductive and invariably mistaken, sometimes disastrously so. Moreover, in the real world, there are inescapable time lags in the system, which mean that spending cuts announced immediately after the election will in any case take time to have their effect. Although the world economic recovery is still somewhat anaemic—particularly in this country, sadly—it is important that the threat of a global banking meltdown, which is the very real danger, has been averted, as the markets have recognised, so there is no economic case for delay.