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The Government have made their choiceshort-term tax cuts before an election, followed by a massive tax hike after the electionjust as they did in the previous
two elections. We have made our choice, too: fiscal prudence with a sustainable path for the growth of public spending and a focus on where the real problem lies, getting credit flowing again, and helping families and businesses in the meantime with properly targeted help.
The Prime Minister said that he had abolished boom and bust, so he did not notice that the boom was based on a bubble and financed by a mountain of unsustainable debt. He deluded himself and the country into mistaking the creation of credit for the creation of wealth. We had the illusion of boom and now we have the reality of a bust. Now that the bubble has burst, his only answer, like a junkie reaching for one last fix, is to borrow still more, but he cannot avoid the truth. This recession was caused by excessive debt and we cannot borrow our way out of debt.
The Prime Minister has planted a tax bombshell under the British people. The clock is ticking, but the British people are not fools. They know that Britain can no longer afford this Government. His fiscal rules are gone, his reputation is shattered, his economic policy is crumbling before our eyes and he no longer has the authority or the credibility to lead Britain through the economic challenges ahead. For years he has lived on borrowed money; now he is living on borrowed time.
The Chief Secretary to the Treasury (Yvette Cooper): We have had a thoughtful debate, once we got past the early bombast from the hon. Member for Tatton (Mr. Osborne). The debate in all parts of the House has broadly been very thoughtful. Hon. Members have talked about the seriousness of the challenges that we face. We have toured the economic history, talking about Budgets from 1993, 1981 and 1967, and we even went back to Snowden. There is a broad consensus in all parts of the House that the events that we have seen in the world economy over the past 12 months have not been seen in any of our lifetimes. This week the biggest bank in the world had to be bailed out by the American Government. That is evidence of the sheer scale of the global problems facing every country in the world.
Extraordinary times require extraordinary measures. Evidence of the extraordinary times is the fact that the right hon. and learned Member for Rushcliffe (Mr. Clarke), having long been an opponent of Bank of England independence, brought himself to support the Banks role in the current events. As the right hon. Member for Fylde (Mr. Jack) said, there is great uncertainty. People are very worried about the economic events that they see around them. That is why the pre-Budget report is so important.
Two things are clear from this debate. First, there is a big difference. We on the Labour Benches believe that we should act now to support the economy; the Conservative party does not. Secondly, the Conservative party is not prepared to take the tough decisions in the future to bring the public finances back into line after the problems caused by the recession.
Mr. Walker: It is estimated that by the time we reach the end of this recession, this countrys national debt will be £1 trillion. Can the Chief Secretary tell us how many zeroes there are in a trillion?
Yvette Cooper: We have set out the forecasts. We are increasing debt and increasing borrowing, because that is the right thing to do, as part of the £20 billion fiscal boost announced by the Chancellor, which includes cutting VAT, extra cash for families and pensioners, income tax cuts and speeding up investment to support jobs, as well as extra help for small businesses in particular, which goes considerably further than the measures that the shadow Chancellor has announced.
We had a detailed discussion about the importance of the fiscal boost, which was clearly and well argued for by my right hon. Friend the Member for Bolton, West (Ruth Kelly), who pointed out the limitations of monetary policy at a time like this. Yes, we need monetary policy and action to support the banks and get them lending again, which is why the action of the Royal Bank of Scotland at the weekend has been welcomed as a step forward, and we do of course need to go further. The hon. Member for Tatton seemed to be calling for radical monetary policy; it sounded to me as if what he was actually calling for was an end to the independence of the Bank of England and for him to set interest rates instead.
Yvette Cooper: We believe that now is an important time to use fiscal policy, as do other countries. In Europe, where major countries debt levels are higher than ours, fiscal action is being supported. The President of the European Commission said just this morning that he is supporting a £160 billion economic recovery package across Europe. In America, for Republicans and Democrats alike, their debt is higher than ours and their borrowing is higher than ours. Yesterday, President-elect Obama announced a fiscal boost of more than 3 per cent. for the American economy, when he said:
The consensus is this, that we have to do whatever it takes to get this economy moving again.
Germany, Spain, the US, Australia, Japan, China and other countries across the world are all introducing fiscal boosts for their economies because they know that there is too much at stake for Governments to stand back and allow the recession to take its course. They all know that the nature of the shocks to the financial system, alongside falling inflation, means that monetary policy is not enough. Even the International Monetary Fund has said [Interruption.]
If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, its now.
Mr. Kenneth Clarke:
My understanding of the background to the PBR on this point is that the Treasury wanted to put in credible figures for two or three years ahead to show how all this was going to be paid for before returning to stable policy, but Downing street did not. Is it not the case that more tax increases were
originally going to be put in than eventually appeared and that they have been replaced by wholly incredible growth forecasts, supposedly getting us back to 3 per cent. growth by 2012?
Yvette Cooper: The right hon. and learned Gentleman is talking nonsense. As the Chancellor said, we looked at a range of options and decided on the fairest options necessary to bring borrowing back down. That is the right thing to do to support a fiscal policy and a fiscal boost that are supported across the world. That is supported by the Bank of England, the CBI, the Federation of Small Businesses, the TUC, the national institute and the Institute for Fiscal Studieseveryone except the Conservative party.
Conservative Members also oppose the action we need to take in future to bring borrowing back down. The credit crunch is not hitting our economy only today; it is affecting our public finances into the future. This year alone, the revenue from the financial and housing sectors is likely to be £25 billion lower, and it will take the financial sector some time to recover. Because of the recession and the impact of the credit crunch, tax receipts will fall to 33.8 per cent. of GDP, and responsible Governments know that that has to be dealt with not now, while the economy is under pressure, but in future once the economy grows. We have set out how to do that in a fair way, but the Conservative Front Benchers oppose any action to bring borrowing down in future. They oppose any tax increases, although I notice that they are still supporting tax cuts on millionaires estates. Not only would they not bring borrowing down, but the effect of their programme would be to push borrowing up even higher.
When my right hon. Friend the Chancellor said earlier that the Government ought to be cutting taxes and giving a fiscal stimulus to the economy, quoting what the Conservative party leader said in July, I noticed that the hon. Member for Runnymede and Weybridge (Mr. Hammond) cried out no, saying it should be done permanently. I should point out to the hon. Gentleman that a permanent fiscal stimulus is a permanent increase in borrowing. That is what this party opposes and why we are calling for borrowing to come back down and why we are being responsible about it.
The cut in VAT, once it is passed through, will mean that the average household will find its normal spending costs more than £20 less each month. That is extra cash that people can spend to support the economy or to help them get through the more difficult times ahead. We want to give every pensioner in the country £60 extra in the new yearsomething opposed by the Conservatives at the very time that it is most difficult for pensioners to pay their fuel bills in the winter months.
We want £3 billion brought forward to repair schools, insulate homes and build roadsagain, that is early investment opposed by the Conservatives. We want to put £20 billion into the economy, which the Conservatives also oppose. It will be funded by borrowing in the short term that we will bring down and which they have opposed time and time again. Yes, it means borrowing more in the short term; the truth is that it will cost us all far more later if we do not do that now. The Conservatives say that we cannot afford to do it, but we know that we cannot afford not to.
Simon Hughes (North Southwark and Bermondsey) (LD): On a point of order, Madam Deputy Speaker. The whole House was grateful to Mr. Speaker for allowing the debate, but my colleagues and I have tried twice to get a vote on the substantive matters to do with the pre-Budget report, first by tabling a prayer against the proposals for the tax changes and secondly by seeking a vote on whether we have had enough time today to debate the pre-Budget report. Labour and the Conservatives voted together to prevent that vote. Will you advise the House [Interruption.]
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