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Mr. Butterfill: I was interested that the hon. Gentleman said that the Government should apply the pain where it really matters to bring public expenditure down. It is fascinating to hear a Liberal Democrat say that there are areas in which he would reduce public expenditure. Perhaps he could tell us one or two of them.
Mr. Bruce: We have already identified certain areas. On the Government's own admission, last year they spent nearly £1 billion on consultancies to achieve virtually no economic benefit. There are a number of such examples where the Government's priorities are simply different from ours. It is not fair to say that there is no room for saving--there is.
Mr. Waldegrave: I want to correct a point that I may have misheard. There are plenty of good reasons for selling the student loan book--it transfers risk and is a sensible thing to do. It does not affect the general Government financial deficit, which is the criterion of concern in the Maastricht criteria, and so is of no relevance to that. In its origin, nature and motivation, it is completely different from what the French have done. It will affect the public sector borrowing requirement but does not affect the European measure, which is different.
Mr. Bruce: I can only draw the Chief Secretary's attention to the evidence in the Select Committee report,
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which he might wish to read, from Andrew Dilnot of the Institute for Fiscal Studies, who suggested that the sale of the student loan book was comparable to the France Telecom mechanism. Perhaps the Chief Secretary should take issue with the Institute for Fiscal Studies.
Mr. Legg: We raised the matter with Treasury officials when we took evidence from them after Mr. Dilnot's comments. Their evidence supports what the Chief Secretary has just said.
Mr. Bruce: Treasury officials and Treasury Ministers are happily singing from the same hymn sheet, but that does not preclude others from taking a different view. The matter is open to interpretation. Whether or not the Government are applying the same mechanism as has been applied in France, they are using the sale of capital assets to justify current expenditure. That is simply living off the family silver.
Mr. Waldegrave: The matter is not one of interpretation. It is a clear matter of definition, where the rights and wrongs are easily ascertainable. The student loan book does not affect the Maastricht criteria. That is not why the measure was taken, and even if it had been taken for the purposes of Maastricht, it would have failed.
Mr. Bruce: The student loan book does not affect the Maastricht criteria, but the MOD sale might. The point is incidental, but, as a number of commentators have pointed out, the Government's practice effectively presents the figures in a better light than they would otherwise appear.
The Select Committee report refers to the change in the policy of assuming a flat rate of unemployment, on which the cost of unemployment can be calculated. The Select Committee did not find that unreasonable, but commented that the timing was interesting, as it allowed the Government to relax the straitjacket slightly. It is odd that they are prepared to forecast unemployment changes, for example, but not exchange rate changes.
We need clarification of the circumstances that this year enabled the Treasury to make that change, which it has resisted every year previously. Did the Government need room to manoeuvre this year, in advance of a general election? No Government would ever put increased unemployment forecasts into their Red Book, as that would be an admission that their economic policies were failing.
The House will know that in our submission we stated that Government borrowing is a matter of concern and must be brought down. We need a disciplined approach. On the basis of the utterances, there is agreement among all parties that that is a problem. That explains why economic discipline is a term of art that financial spokesmen of all parties use.
We could do more. For several reasons we should introduce proposals to make our central bank independent.
Mr. Jack:
Perhaps the hon. Gentleman can help me. His party, unlike the Labour party, has tried to be specific about its economic proposals. He expressed his concern about the level of borrowing and spending. In his disciplined world, what percentage of GDP would he find an acceptable level of borrowing and spending?
Mr. Bruce:
I will not answer that. The Government have got themselves into a fantasy arena. The Chancellor
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There is consensus that significant variations in tax from about 40 per cent. do not carry much support. Over the cycle, however, there are occasions when taxes may have to go up, and there may be occasions when they have to go down. If we are to consider getting taxes down to 35, 33 or 32 per cent., we need far more detailed information about what that means in terms of sustainable economic growth, if that it how it is to be financed, or in terms of further privatisation of public service provision.
Does the Tory party want to ensure that people are forced to buy more private insurance for unemployment, health care and long-term care in their old age? I suspect that that is what the Government mean, so they should be more honest about it. Instead of telling us about the wonderful benefits of reducing taxes, they should explain the painful consequences of what people may have to buy. It is a legitimate subject for debate, but we need the whole story, not just an isolated focus on one percentage figure, divorced from the philosophical change in the way that services are to be provided.
We need to get borrowing under control. The time is becoming ripe for establishing an independent central bank as a means of helping to bring borrowing down, not least because it would help to reduce interest rates, which would have wider benefits.
I welcome the fact that in yesterday's Financial Times the Labour party indicated that it was moving in that direction. As a precondition, however, Labour wants the Governor of the Bank of England to insist publicly on an election-losing increase in the interest rate, which suggests that the ability to stand back and not to interfere is not built into Labour's thinking. That is not the role of an independent central bank.
On interest rates, the Government may be on the horns of a dilemma, as the national interest and the Conservative party interest clash. The market may resolve the dilemma for them if they insist on staying in office until May.
I have pressed Treasury officials and Ministers, including the Chief Secretary, on the GDP deflator. There is a lack of confidence that the Government's inflation forecasts are achievable. Most commentators regard the forecasts as optimistic. A GDP deflator of only 2 per cent. does not sit comfortably with that scenario. Treasury officials say that there is nothing to worry about because if the GDP deflator turns out to be wrong it will be offset by the consequential benefit in increased revenues above forecast.
Experience of the past two years tells us that there is no direct correlation, and developments could go in the wrong direction. That could make public commitments such as the funding of the health service difficult to achieve. The Government should put their intentions on record.
Windfall benefits of more than £11 billion will come through from the building societies and insurance companies. That will clearly have a potential effect on
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The Chancellor has recognised that his room to manoeuvre is limited. He deserves credit, which I have given him on numerous occasions, for resisting the more strident calls for an expansionary or give-away Budget that might have created the climate for an election-winning boom, but would inevitably have led to an enormous crash later. The markets have made their position so clear that if the Chancellor had tried that, he would have had to cut and run quickly, before the markets caught up with him.
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