|Budget Resolutions and Economic Situation
My hon. Friend is absolutely right. Many of the businesses in her constituency employ people who live in my constituency, and they share the view that she has just expressed.
If we are to cut spending, we must try to do so without cutting services. That goes without saying. There is huge scope for doing that. If the public sector had matched the productivity increases of the private sector, rather than undergoing a productivity decline, much of what is required to get the deficit down would simply not be necessary. In short, the failure to achieve efficiency in the public sector is the cause of the problem, and the reason why there is now scope for making savings without making cuts in services. The Labour Government are prepared to tolerate waste and inefficiency, and they place no requirement on the public sector to match or emulate the constant improvements in productivity that are required in the private sector. That provides the problem, as well as the scope for reducing it.
We want to get on with the job. We do not want the savage cuts that the leader of the Liberal Democrats was calling for-although he seems to have resiled from that position recently. We want to get on with the job, because the sooner we tackle the problem, the less painful it will be. It is just like tackling an illness: the sooner we start to treat it with antibiotics, the less likely we are to have to resort to surgery. The sooner we start to cut the deficit, the less painful it will be. Departments would be able to rely on freezing recruitment, rather than introducing redundancies. If redundancies were necessary, they could be voluntary rather than compulsory. Starting the process now would be less painful than having it forced upon us after the election, without preparation. Another Labour Government would be forced to start that process, were they returned to office.
We do not believe that starting to take these measures would destroy the recovery. Nor, of course, did the Government, as the Institute of Directors has pointed out. A Treasury document from back in 2003 said that there could be such as thing as an “expansionary fiscal contraction”-reducing the deficit with expansionary effect. It said that such a contraction””is most likely when a country is facing a critical fiscal situation and takes strong action by cutting unproductive spending, and this is accompanied by further structural reform and an exchange rate depreciation.””
In precisely the circumstances we are now in, a reduction in the deficit is likely to have an expansionary effect through restoring confidence, releasing resources and enabling one to take a more relaxed monetary policy than would otherwise be the case.
The best solution to our problems is the restoration of growth. Growing economic activity, with growing tax revenues and reduced unemployment, must be the best way to eliminate a large part of the deficit, but restoring economic growth depends on three things. It depends on confidence, it depends on cash, and it depends on a competitive exchange rate. I believe that the process of getting on with tackling the deficit will itself have a positive effect on confidence, as it did in previous recessions when we finally began to tackle the problem. A new Government will help restore confidence in the economy, too, as people see that those who got us into the problem are no longer being relied on to get us out of it.
As for more cash, people talk about the Government reducing their spending and taking cash out of the economy. What puts cash into the economy is banks lending more than they receive back in repayment. That is what creates cash in a modern economy. If we are to have a growing economy, we must have a growing money supply-not outstripping the growth of the economy, but growing in line with it and with its potential. We are not seeing that at present. We have seen the banks taking back more money than they are lending out, and we have seen a reduction and a tendency for the money supply and the economy to decline. We want to see the Government ensuring that the money supply grows in line with the underlying capacity of the economy. It can do so by quantitative easing. If it does, I hope it will do so more by ensuring that such easing takes place through dealing with private sector rather than public sector liabilities-exchanging them for cash and getting that cash straight into the private sector. That must be done.
The final element is a competitive exchange rate. That, thank heavens, we have. We have it solely because we were wise enough not to enter the euro area, so we have a more competitive exchange rate than we otherwise would have had. That gives us an opportunity, not a certainty. It is vital that we take that opportunity and create conditions of which our businesses can take advantage. I believe that we will be in that happy position only if we get rid of the Government who got us into this problem and replace them with a Government who have competence, confidence and the commitment to getting our problems under control as soon as possible.
|House of Commons (HoC)
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