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George Osborne mocks the Government's growth projections

George Osborne It was Treasury questions yesterday.

Shadow Chancellor George Osborne poured scorn on the Budget growth forecasts:

"As the Chancellor knows, the growth forecasts that he gave us in the Budget last week, which predicted a return to boom levels of growth in just two years, and that the economy would stay at those boom levels, were greeted with near-universal derision, yet they were the fiction on which he constructed every other Budget forecast. When he gave those forecasts, did he know that the IMF was planning to contradict them flatly just an hour later?

Mr. Darling: Yes, of course I knew the IMF forecasts. The IMF takes a more pessimistic view, not just of our economy but of every economy across the world. However, we ensure that our forecasts are based on the information that we have. If hon. Members look at the IMF and its forecasting over the past three months, they will see that it has downrated its forecasting three times since last October, which demonstrates the uncertainty in the system. However, I believe that because of the action that we are taking, because of the fact that we have low interest rates, because inflation will be coming down this year, and because of the action that most other countries are taking to look after and support their economies, that will have an effect, which is why I remain confident that we will see growth return towards the end of this year.

Mr. Osborne: Frankly, I do not think the Chancellor is in any position to lecture anyone else about downgrading their forecasts after last week. Is not the truth this—that the dishonest Budget has completely unravelled in the space of just a week? We have seen the IMF produce those growth forecasts, which were wholly different from the ones given an hour earlier to the House of Commons. We have the CBI saying that there is no credible or rigorous plan to deal with the deficit. We have the Institute for Fiscal Studies pointing to the black hole, and yesterday a former member of the Cabinet, beside whom the Chancellor sat at the Cabinet table, said that his tax plans were a breach of a manifesto promise that is damaging not just to the Labour party, but to the economy. Today we had the Prime Minister getting a lecture in prudence while he was in Warsaw. We are used to Polish builders telling us to fix the roof when the sun is shining, but not the Polish Prime Minister as well.

Does not the collapse of the Budget in the past week and the damage to the Chancellor’s credibility make an almost unanswerable case for an independent office for Budget responsibility, so that we get independent forecasts on Budget day and the assumptions of the Budget are believed by the public?

Mr. Darling: No. The big difference between us is on the action that the Government should take, faced with a downturn of the magnitude that we see today and the problems that we and every other country are facing at present. The hon. Gentleman’s solution is to stand back and let nature take its course. That is a price that I am not prepared to pay. I have set out in the Budget measures to help not only individuals, especially those who may be facing unemployment and need help to get back into work quickly, but businesses in this country. We also ensured over the past few years that we went into the downturn in a position where the Bank could reduce interest rates, unlike in the past, when interest rates had to be increased. The action that we have taken to help the economy now and the action that I set out to get borrowing down again is realistic and sensible, given the situation that we face. The question that the hon. Gentleman will have to answer sooner rather than later is, if he is critical of all that, what exactly is he proposing in relation to public spending? What exactly is he proposing to do to help people and businesses in this country? At present that is absolutely opaque."

Mark Pritchard, MP for The Wrekin, asked about the interest credit unions charge:

"If the Government are serious about helping the poor, why are Ministers allowing some credit unions to charge up to 27 per cent. interest? That is far higher than the rate charged by many leading retail banks. Given the large taxpayer subsidy to which the Minister has just referred, are the Government not complicit in making the poorest in our society suffer?

Ian Pearson: No; I do not accept that. The Government strongly support the credit union movement across Great Britain. There are 532 credit unions, which have two thirds of a million members and somewhere in the region of £500 million-worth of assets. I would have thought that the hon. Gentleman would welcome the extra resources that the Budget has provided to make additional loans available to vulnerable people at very affordable prices. By 2011, an additional 85,000 people will be able to be helped as a result of the actions announced in the Budget last week. That is good news for people who need affordable credit; the credit unions play a tremendously important role in keeping such people away from doorstep lenders and loan sharks. Credit unions should be supported, and that is what the Government are doing."

Louth and Horncastle MP Sir Peter Tapsell asked about the Government's money printing:

"Does the Chancellor agree that the objective of the announced programme of quantitative easing is to increase and facilitate lending by banks to businesses? The Bank of England has warned against another fiscal stimulus, so why is it proceeding with QE in such a half-hearted manner that it has actually raised the yields on gilts? It was also very slow to lower interest rates on the eve of the crisis. Would not Montagu Norman be proud of them?

Mr. Darling: I will leave that discussion for another day. The Bank of England has authority to put money into the economy to kick-start credit, and it has agreed to spend £75 billion. Part of that will involve buying commercial paper to help ease lending conditions between companies, but it takes time to build up that activity. The Bank has operational independence for doing that; although, obviously, I had to authorise the operations in the first place, the Bank decides when and where to intervene. I know that the Governor is very aware of the fact that, as part of the process of putting money into the economy and getting credit going, he must ensure that he helps the commercial sector. I know that he is looking at various measures to help him to do that, and he set all that out when he last appeared before the Treasury Committee."

Shadow Treasury Minister Mark Hoban suggested that credit is not flowing like it should:

"The Chancellor is being complacent about the flow of credit into the economy. The enterprise finance guarantee scheme is under fire from businesses up and down the country. The working capital scheme started a month late, with only RBS signed up to it. In the Budget, after months of pressure, the Chancellor finally announced the trade credit insurance top-up scheme. Did the British Retail Consortium not sum up the Government’s attempt to get credit flowing again when it said that the trade credit insurance scheme was “too little too late”? While the Government have dithered, the help that they have offered has come too late for many businesses and their employees.

Mr. Darling: I would say that the support that we have made available to the banking system is fully justified. It was necessary—as I said, it is a necessary precondition of recovery. We have also put in place a number of measures: the hon. Gentleman mentioned the enterprise finance guarantee scheme, which is helping 2,000 businesses. We now have support for exporters and other measures of support, too.

I hope that when the hon. Gentleman spoke to the BRC he pointed out that what would have happened had he had his way, as he was against every single one of the measures. I am always interested to hear his concern about what we are doing, but he ought at least to stand up and say, “By the way, I would not have done any of these things”, as his Leader of the Opposition made clear at the weekend."

Gosport MP Sir Peter Viggers wanted to know the financial obligation placed on the Government through shareholdings in banks and building societies:

"The Financial Secretary to the Treasury (Mr. Stephen Timms): The Government have to date invested £37 billion in Lloyds and RBS. The Budget estimated that the one-off long-run fiscal impact of all the interventions to ensure stability in the financial system will be between 1.5 and 3.5 per cent. of gross domestic product.

Sir Peter Viggers: If the Prime Minister can express anger that the Royal Bank of Scotland should make an acquisition without fully understanding the extent of the commitments that it was taking on, how much more angry should we be that the Government have taken on commitments and made investments in banks without knowing, even now, the full extent on the taxpayer’s behalf?

Mr. Timms: I am not quite sure what the hon. Gentleman is saying. The implication is that we should not have stepped in to save the financial system from collapse because of the uncertainty to which he refers. The cost of doing nothing would have been far, far greater. We took decisive action. We acted quickly and we saved the system from collapse; indeed, in the debate yesterday, the shadow Business Secretary recognised that those steps were right."

John Redwood asked yet another excellent question:

"Is there any limit to the amount of financial risk and debt that the Government should assume? Can the right hon. Gentleman tell us if they are using any prudential rule at all to stop us heading towards national bankruptcy?

Mr. Timms: The right hon. Gentleman will have seen what my right hon. Friend the Chancellor said in the Budget about returning the public finances to balance by 2017. He will also have seen the estimate I have mentioned already that the overall cost of all the interventions we have set out in the Budget will be between 1.5 and 3.5 per cent. of gross domestic product. It was absolutely vital that we took those measures."

Mark Field (Cities of London and Westminster) also wanted to know when the end was in sight:

"Mr. Mark Field (Cities of London and Westminster) (Con): Although I appreciate that the Treasury is reluctant to commit to any timetable about divesting its interest in the banks, how will we all know when the financial system has been fixed?

Mr. Timms: What we are looking for is a restoration of the flow of credit, in particular to mortgage borrowers and to businesses. We are some way from that position yet, but as my right hon. Friend the Chancellor mentioned, the Bank of England is now publishing a monthly report on trends in lending. We shall be scrutinising those reports carefully, as I am sure will the hon. Gentleman. We want to see the flow of credit go back to normal."

Richard Spring had an amusing pop at Labour policy:

"How many times have the time spans of the so-called golden rule and the sustainable involvement rule changed in the past 10 years?

Yvette Cooper: We made it clear as part of the pre-Budget report that we are not following the previous fiscal rules at the moment. It would not be appropriate to do so now because, for the first time since the second world war, the entire world’s economy is shrinking, which we did not expect even 12 months ago. That is having an impact on the public finances, which is why all countries throughout the world are increasing support for their economies. No country would support such a tight approach or cutting public spending during a recession, as the hon. Gentleman’s party advocates."

Opposition Whip Brooks Newmark also tried to get a definitive figure from the Government on the level of debt that it would be prepared to take on:

"Mr. Brooks Newmark (Braintree) (Con): Given that the Government intend that borrowing will be in excess of £1.4 trillion over the next four years, will the Chancellor please tell us how much debt the Government would be willing to take—both on and off balance sheet—before it became unsustainable?

Mr. Darling: As I was saying a few moments ago, it is important that we support the economy now. As I think the hon. Gentleman knows, as a result of what is happening, we, like other countries, have experienced a substantial drop in our tax revenues. For example, more than 25 per cent. of our corporate tax revenue used to come from the banking sector, so what has happened has had a consequence. In the face of that, he might argue that we should embark on wholesale cuts now, but that would be absolutely nonsense—

Mr. Newmark: No.

Mr. Darling: The hon. Gentleman says no—I agree with him—but that means that borrowing will be allowed to rise, which has a consequence on debt. At the same time, however, we must take action to ensure that we bring down borrowing and debt, and we have announced how we propose to do that. It is right and sensible to support our economy while ensuring that we have sustainable public finances in the long term."

Shadow Treasury Minister David Gauke had spotted an omission in the Budget:

"The Budget revealed the worst borrowing figures in our peacetime history and the Government’s projection that they will not get back to a balanced budget for another eight years. However, the day after the Budget, it emerged that the Treasury’s projections include an unexplained fiscal tightening from 2014 of £45 billion, the equivalent of £1,450 in tax rises per household. Why was there no mention of that in the Chancellor’s Budget statement?

Mr. Darling: I did set out a path to reduce our borrowing over the next five years. The number the hon. Gentleman uses came from the Institute for Fiscal Studies last week. At this stage, when there is an awful lot of uncertainty out there, it is sensible to set a path that shows that, yes, we are supporting the economy now, but we are taking action to ensure that we reduce our borrowing over the next few years. To attempt to write a detailed Budget for 2015, 2016, 2017 or 2018 would be ridiculous when there is so much uncertainty, but it is important that we set out a clear direction of travel. The hon. Gentleman criticises me for saying that I will halve the deficit over the next five years and implies that he would go further. If the Conservatives think that we ought to reduce borrowing faster, I would be interested to know when they intend to spell out in detail what they would do to meet that target, instead of just hinting."

Opposition Whip John Baron made the case for low tax:

"The Financial Secretary to the Treasury (Mr. Stephen Timms): For a household with a single earner on average male earnings, the proportion of income paid in direct tax was approximately 19 per cent. in both 2008-09 and 2011-12, a little more than 20 per cent. in 2007-08 and more than 21 per cent. in 1997.

Mr. Baron: Does the Financial Secretary understand that my constituents were fed up with paying more taxes under this Government, even before the Chancellor doubled the national debt? No-one is fooled: a 50 per cent. tax rate may make it look as though the rich are paying more tax before the election, but after the election it will be average earners who are paying even more tax, because of increases in fuel duty and national insurance contributions, which by 2012 will cost every family in this country an additional £1,000.

Mr. Timms: Among the pieces of information that the hon. Gentleman gives his constituents, I hope that he will point out that they will pay less as a proportion of their income in direct tax in 2011-12 than they did in 1997 and that every basic rate taxpayer is, with effect from this month, benefiting from a £145 tax cut, thanks to the increase in personal allowances, which exceeds future national insurance rises. I hope also that he will have the courage to admit to his constituents that the Conservative party’s only tax promise to date is to increase the inheritance tax threshold to beyond £1 million, which would do nothing at all for 97 per cent. of estates, but would give an average of a £200,000 tax cut to a tiny handful—3 per cent.—of estates. His constituents might have second thoughts when he explains that to them."

Shadow Chief Secretary to the Treasury Philip Hammond was concerned about tax rates too:

"Mr. Philip Hammond (Runnymede and Weybridge) (Con): I think the situation is even worse than my hon. Friend the Member for Billericay (Mr. Baron) fears. My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) put his finger on it: the small print of the Budget Red Book shows us that if we fast-forward a couple of years, even with roaring growth in line with the fantasy forecasts that the Chancellor gave us last Wednesday, a further £45 billion-worth of tax increases would still be required. Will the Financial Secretary to the Treasury confirm that that equates to £1,450 a year extra tax per family? Is not the truth that behind the spin about taxing the few with a 50p tax rate, the reality is a secret Labour stealth tax bombshell, targeted at the many and timed to go off after the next general election?

Mr. Timms: I think I remember that poster. I can say to the hon. Gentleman that for the household that the hon. Member for Billericay (Mr. Baron) asked me about, and that we talked about—the household with the single earner and two children—the proportion of income spent on tax has gone down since 2007-08. It has gone down significantly since 1997, and we will protect the well-being of those families in the years ahead, both through our investment in public services and through the way in which we manage the tax system."

Shrewsbury and Atcham MP Daniel Kawczynski asked what the Government is doing to encourage saving:

"The Economic Secretary to the Treasury (Ian Pearson): The Government recognise the importance of saving in providing people with independence throughout their lives, security if things go wrong, and comfort in retirement. Budget 2009 announced that from April 2010, the annual individual savings account investment limit will rise to £10,200, up to £5,100 of which can be held in cash. Those new limits will apply from October 2009 for people aged 50 and over. The Government also announced an extra £100 a year for the child trust funds of disabled children, with £200 per year for severely disabled children. In addition, the saving gateway will be introduced nationally in 2010 to encourage saving among people of working age who are on low incomes.

Daniel Kawczynski: The measures outlined by the Minister are in no way commensurate with the huge loss to senior citizens’ savings as a result of the cut in interest rates. A great concern of the Shropshire Association of Senior Citizen Forums, which is 6,000 members strong, is the fact that members’ incomes have been cut so drastically as a result of the cut in interest rates. What specifically are the Government doing to help those people?

Ian Pearson: As I just said to the hon. Gentleman, people over 50 will be able to see an increase in their ISA limits by October 2009. He will be aware of the capital disregard for pension credit and pension-rated housing and council tax benefit, which was raised from £6,000 to £10,000 when the Budget was announced. Again, that will come into effect in 2009. I recommend to him the Moneymadeclear website, which offers free, impartial advice on a range of savings products that have rates significantly in excess of the current Bank of England base rate. That is on top of the measures that we announced in the pre-Budget report to increase the basic state pension. We want to do the right thing by pensioners in this country, and we are doing that. I am sure that they will welcome the increase in ISA limits that we announced last week."

Sir Patrick Cormack (South Staffordshire) raised a vital issue:

"If the Government believe so strongly in encouraging saving, why are they treating the Equitable Life victims so shabbily?

Ian Pearson: The hon. Gentleman will be aware of the report that we produced in response to the ombudsman’s report on Equitable Life. We have announced that we want to make progress as speedily as possible, and we have asked Sir John Chadwick to provide us with advice. We are committed to introducing an ex gratia payment scheme as quickly as possible. We want to treat those who have suffered a disproportionate impact as a result of the events at Equitable Life, for which we have apologised, fairly and as quickly as possible."

Croydon South MP Richard Ottaway delighted in quoting the Prime Minister of Poland:

"My hon. Friend the shadow Chancellor mentions the joint press conference in Warsaw this morning, but is the Chancellor aware of what the Prime Minister of Poland said? He said that the Poles had fared so well because they behaved with

    “full responsibility in terms of their deficit”,


    “the method to cope with the financial crisis was not to increase expenditure”,

and that Warsaw had

    “efficient supervision to banks and sticking to the rules...not exaggerating with living on credit. These are the most certain ways of avoiding”

the consequences

    “of the financial crisis.”

Does the Chancellor agree that the Polish Prime Minister made our Prime Minister look a bit of a novice?

Mr. Darling: Sadly, I did not have the benefit of listening to the Polish Prime Minister, but I am glad that Poland has managed to do so well over the past few years. I am sure the hon. Gentleman will recognise that there are differences between Poland and other countries. If we look around Europe—I am glad that Opposition Members are now prepared to look at Europe and cite other European countries with approval; that is certainly different from how it used to be in the past—the more developed economies in Europe have experienced exactly the same difficulties as we have, as America has and as Asian countries have. There is no country in Europe, Poland included, advocating the present policies of the Conservative party."

Tom Greeves


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