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The Budget

I am disappointed that the hon. Gentleman, for whom I have always had a lot of time and respect, has reincarnated himself from a John Maynard Keynes supporter to a Milton Friedman supporter. The truth, as he should know, is that it is the proportion of debt that matters if an economy is growing and achieves record growth consistently, year on year. We had never experienced as long a period—10 years—of steady growth in Britain’s entire economic history as we did under our Labour Government. GDP went up and debt, as a proportion, was very low. As the backdrop to the Budget and why I oppose it so strongly, what is the truth about Government spending? Before the banking crisis, UK Government spending was lower relative to national income than in France, Germany, the Netherlands, Norway and Sweden. It was never out of control, as Ministers claim. If it had been, the Conservatives would never have accepted our spending plans. Before the banking crisis, however, they did. Up to November 2008, they kept promising to abide by our Labour Government’s public spending plans—indeed, to extend our plans to 2010. Their Liberal Democrat allies even demanded we spend more, most of the time. Government spending did not, therefore, cause the crisis. There was no crisis in the public finances until we got the bill to bail out the banks. That was when the deficit and the recession took off. Rebuilding bank balance sheets cost the taxpayer £90 billion by last June, according to the International Monetary Fund. The full cost of the recession, however, which was brought on by the financial crisis, has been much higher. With national output some 10% lower than it would have been had the economy continued to grow as it had done year on year under Labour, incomes are £140 billion lower than expected. Consumer spending, business investment, and tax revenues are therefore down. The Labour Government’s spending had to increase, however, to help firms and families who found themselves in difficulties through no fault of their own, hence the big increase in Government borrowing. That is the true story of the crisis in the public finances.