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George_osborneFollowing Shadow Chancellor George Osborne’s success in securing it, the House of Commons held an Emergency Debate on the Pre-Budget Report yesterday.

Mr Osborne was on bullish form:

"The public would have found it extraordinary if the House of Commons had not properly considered the huge tax measures put forward by the Chancellor on Monday, or indeed the tax measures concealed by the Chancellor on Monday. Those measures are being debated by families across the country who fear their impact, and it is astonishing that the Government did not want them debated in the House of Commons.

The only explanation is that the Prime Minister is running away from the argument, because he knows that he is losing the argument. This Budget started to unravel from the moment it was delivered. The doubling of the national debt shocked the entire country. [ Interruption .] Labour MPs may not be shocked, but the country is shocked to realise that the Government have taken it to the edge of bankruptcy. Within minutes of the report being published, it became clear that the national insurance rises would, contrary to the Chancellor’s claims, hit people on modest incomes. The small print of the Budget book shows that the Chancellor had been less than candid about the stealthy duty rises on alcohol and petrol. Then we discovered the £100 billion black hole in the tax revenues with no explanation of how it will be filled.

Yesterday lunchtime, the Institute for Fiscal Studies pointed out that the new top rate would raise, in its words, “virtually nothing”. The Governor of the Bank of England told the Treasury Select Committee yesterday that the Government should be focusing on fixing the banking system. Meanwhile, retailers are up in arms about the huge costs and logistical nightmare imposed by the temporary VAT cut. Last night, the Chancellor U-turned on the proposed hike in whisky duty, which he had announced only 24 hours earlier. Finally, it has been revealed in an official Treasury document signed off by a Treasury Minister that there is a secret tax bombshell to increase VAT to 18.5 per cent."

Opposition Chief Whip Patrick McLoughlin made a devastating intervention right at the start of the Chancellor of the Exchequer’s speech:

"The Chancellor of the Exchequer (Mr. Alistair Darling): I very much welcome the opportunity to debate the pre-Budget report, and having listened to the shadow Chancellor for the last 20 minutes, I wish the debate could go on for several hours because we might find out if the Conservatives have any policies to deal with what is happening to the economy.

I understand, Mr. Speaker, that you have indicated—

Mr. Patrick McLoughlin (West Derbyshire) (Con): On a point of order, Mr. Speaker. The Chancellor has just made a very kind offer. Is there any way in which he can implement it to allow the debate to go on for longer? We would welcome that.

Mr. Speaker: This is a three-hour debate—end of story."

Former Chancellor Kenneth Clarke was able to set the current crisis in a historical context:

"I am afraid that in this country we are probably facing the longest and deepest recession of my lifetime. I entirely share the sentiments of my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack); I hope that my forecast, along with all the other more gloomy forecasts, is wrong, because I do not wish to see the levels of unemployment, housing repossessions and business failures that we will see if we do indeed have the worst recession since the second world war. It is a very real risk, however, and there is no doubt that the global financial and banking crisis is the worst of its kind for at least 80 years. It has been made worse in this country, and we are more exposed than most developed countries, largely because of the mismanagement of the public finances and the failure to retain a sufficiency by way of firepower in the public finances. That is largely down to the former Chancellor—the present Prime Minister—and the complete failure of the regulatory system that he put in place when he took office.

I am not going to go back to past recessions, although the Government always refer to the two that we had previously, which we shared to a certain extent with the rest of the globe and which, I remind them, we successfully exited. Obviously we looked at the usual monetary and fiscal weapons; indeed, we used them in a new way. We used monetary policy to target inflation, because they were inflationary recessions, and we went for sound fiscal policy to restore confidence in the public finances and provide the background of stability that was required to get back to growth in the economy. Of course we looked at all the options, including fiscal stimulus. However, I remind the House of my right hon. Friend Lord Howe’s Budget in 1981. When he imposed very stiff increases in taxation and reductions in public spending in order to get back to fiscal stability, he was berated by all the so-called Keynesians—it was a bit of an insult to
John Maynard Keynes—for doing so, but it was successful. I will not dilate on my own Budget of 1993, but I also had a fiscal problem, to a modest extent—it was not as bad as the one faced by Geoffrey Howe—and I did the same thing. Fiscal stimulus can be considered, but there are often good reasons for rejecting it."

Sir Peter Tapsell, whose frequent warnings about the sale of gold reserves have been vindicated, made a thoroughly unfashionable-for-a-Conservative point, with characteristic frankness. Mr Clarke has never been afraid to do the same, but did not concur on this occasion:

"Sir Peter Tapsell: As someone who berated the 1981 Budget well before the 364 signatories to the famous letter, I said that a Budget that I described as intellectually and economically illiterate would destroy the base of British industry, and that was true—the west midlands has never recovered. The 1981 Budget is the reason why now, with the collapse of our financial industry, we do not have a proper industrial base.

Mr. Clarke: My hon. Friend was the most distinguished of those very strong critics in 1981. I did not agree with him then, and I do not now. I agree that our industrial base was destroyed, but I put that down to the excessive strength of sterling before 1981, which destroyed our competitive position. However, we can debate that hereafter."

Peter Lilley was on form too:

"Given the inadequate time allocated for this debate, I shall make just a few brief points. Unless we correctly diagnose the causes of our problems, we will not get the right cure. It is therefore extremely worrying that the Chancellor and the Prime Minister persist in the self-serving delusion that the cause of our problems lies exclusively in the United States of America. It was not America that caused us to have the biggest boom and bust in the housing market. The excessive lending, which exceeded not only that of America but that of the rest of the world, was a British-made problem. The failures of regulation by the regulatory system introduced by this Government were at least as severe as those in America. It was those mistakes, and not sub-prime mortgage lending, that brought down Northern Rock, then Bradford & Bingley and finally HBOS. It was the Government’s policy of spending more than we were raising in taxes that led to the deficit in the public finances and the corresponding deficit in the balance of payments, thereby necessitating the huge devaluation in the pound that we have seen recently. I cannot see how any of the measures announced by the Government relate to those fundamental, underlying causes of the problems that we face.

[We] are forbidden, under the present laws, to reduce VAT to under 15 per cent. That is absurd, and we should have asked for a waiver from that requirement. We should not allow that to be a restriction at a time of national emergency. However, it is significant that, by the modesty of their package, the Government recognise that even these measures are at, or even above, the maximum that we can afford, and that more might have had a negative effect."

Shadow Chief Secretary to the Treasury Philip Hammond wound up for the Tory front bench:

"The Government borrowed through the good years, when more prudent nations were piling up surpluses and they ran a structural deficit when they should have been paying off debt. They have sheltered behind a bogus set of fiscal rules that failed to constrain reckless borrowing in the good times and was promptly junked when the going got tough. As recently as May this year, the Prime Minister was extolling the sustainable investment rule—that debt should not exceed 40 per cent. of GDP. On Monday, without a hint of an apology, the Chancellor told us that debt will now reach 58 per cent. of GDP, casually admitting that the Government will have doubled our national debt to £1 trillion. That is one third higher in real terms than our national debt when we had just finished fighting the second world war.

Over eight years, the Government have repeatedly projected a return to fiscal balance a few years down the line, and they have repeatedly been wrong. On Monday, they did so again in the pre-Budget report, learning nothing and forgetting everything. The Government project a short and shallow recession while the weight of expert opinion sees a longer and deeper one. The Government claim that Britain is well prepared, but all the evidence from the OECD, the International Monetary Fund and the European Union is that the recession here will be worse than that of any comparable economy. They forecast a rapid return to above-trend growth in 2011 on the basis of no evidence whatever. To gloss over the black hole in their numbers, and ignoring the warning from the right hon. Member for Bolton, West (Ruth Kelly) that revenues will be slow to recover, they assume in the pre-Budget report a fantasy acceleration of growth in Government revenue from 2.8 per cent. a year to 4.1 per cent. a year. That is £20 billion a year in revenue conjured out of nowhere by the manipulation of the figures.

Thanks to the Government’s profligacy, the full faith and credit of the United Kingdom is now rated less highly by the markets than the promises of companies such as Nestlé and British Petroleum. Sterling has declined 25 per cent. against the dollar—more than the 1967 “pound in your pocket” devaluation and more than the 1992 exchange rate mechanism devaluation. And what is the Government’s solution? Their big plan, their answer to a recession caused by reckless borrowing and excessive debt, is more reckless borrowing and still greater debt. Their answer is to fund temporary cuts in VAT at a time when prices are falling anyway, and when the Prime Minister and the Governor of the Bank of England are warning against the risks of the deflation, followed by increases at the very point when the economy is supposed to be coming out of recession and will need all the encouragement it can get. Borrow now, pay later."

Conservative MPs – frontbenchers and backbenchers alike – took yesterday’s opportunity very well indeed.

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