Public Finances: Borrowing Costs

Commons Urgent Question

11:50:00

My Lords, with the leave of the House, I will repeat as a Statement an Answer to an Urgent Question given in the other place by my right honourable friend the Chief Secretary to the Treasury. The Statement is as follows: “Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements, and I will not break with that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors. It is normal for the price and yields of gilts to vary when there are wider movements in global financial markets, including in response to economic data. In recent months, moves in financial markets have been largely driven by data and global geopolitical events, which is to be expected as markets adjust to new information. UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well diversified investor base. The Debt Management Office’s gilt sales operations continue to see strong demand, with the latest auction held yesterday receiving three times as many bids as the amount on offer. The Chancellor has commissioned the Office for Budget Responsibility to provide an updated economic and fiscal forecast for 26 March, which will incorporate the latest data. Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy and I will not pre-empt its forecast. There should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is non-negotiable. I end by saying I am pleased that the right honourable Gentleman is holding this Government to account on our stewardship of the economy. It is important that he does so, because he will remember when his party crashed the economy with unfunded tax cuts, unrealistic public spending plans and a clear disregard for the consequences on family finances. Families across the country are still paying the price of its disastrous performance on the economy, with higher mortgages and bills. If there was one clear reason why the Conservative Party suffered such an historic defeat at the last general election, it was its performance on the economy—and presumably why the shadow Chancellor himself admitted in December that the lack of trust in the Conservative Party’s management of the economy has left a ‘deep and painful scar’ in the pockets of every person across Britain. Let me tell him what has changed. This Labour Government have in their first six months exposed the £22 billion black hole in the public finances left by the previous Government. They have dealt with that problem with the Chancellor’s Autumn Budget, protecting working people, wiping the slate clean from the mess the Conservative Party left the country in and investing in our NHS and schools. We have given the independent Office for Budget Responsibility enhanced powers of oversight, so that we never get into the situation again where a £22 billion black hole in the public finances can be covered up, and set tough fiscal rules that are non-negotiable, with a Budget settlement for public services that we must all live within. We have also kick-started growth in this country—the number one mission of this Government—by unlocking investment and bringing forward reforms in planning and in the Mansion House speech. Might I just say to the right honourable Gentleman that this is in stark contrast to the negligent, shameful horror of a circus performance that the Conservative Party unleashed on this country when they were in government only a few months ago? Until he can come to this House with an apology for the British people, I will not take any lectures from the Conservative Party about how to run the economy”.

11:54:00

My Lords, the Government made their first objective high economic growth and, so far, they have not had that much success. Another prime objective, reiterated by the Minister, was economic stability; again, they have not yet got very far with that. Survey after survey has shown that business confidence has simply collapsed and we can see this in the market. In the last 48 hours, borrowing costs have reached a 27-year high and, of course, every pound that we spend on debt interest is money that we cannot spend on public services. In the Budget, the Chancellor hiked up taxes, increased borrowing by an average of £32 billion a year and conveniently adjusted her fiscal rules. Given that she appears to be about to break those rules, does the Minister stand by the Chancellor’s statement that she is not coming back with more taxes? Yes or no? We are keen to have a clear answer.

I am grateful to the noble Baroness for her question. She is absolutely right that growth was one of the biggest failures of the previous Government. We are determined to turn that around. She is also correct to say that there should be no doubt of the Government’s commitment to economic stability and sound public finances. That is why meeting the fiscal rules is absolutely non-negotiable. I am not going to pre-empt future fiscal events or spending reviews now, but the Chancellor has been absolutely clear that she would not repeat the likes of the October Budget and is focused on growing the economy so that people in every corner of the UK see an improvement in living standards. We have set very tough fiscal rules, tougher than those of the previous Government, which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to. That will involve tough choices on spending, but they are choices we are prepared to make, and our reform agenda will be central to improving services going forward.

My Lords, the Minister used the phrase “meeting the fiscal rules is non-negotiable”. A few minutes ago in the other place, my colleague the honourable Member for Wokingham asked for a similar reassurance that promised investment in the NHS and care is also non-negotiable. The reply, I hope inadvertently, was somewhat soft and went no stronger than commitment. Can the Minister use the term “non-negotiable”, because we need reassurance that there will be no scaling back of the committed investment in the NHS and care?

I am grateful to the noble Baroness. As she says, there should be absolutely no doubt of the Government’s commitment to economic stability and sound public finances. She is right to say that meeting the fiscal rules is, for this Government, non-negotiable. We have set very tough fiscal rules which we meet two years early. We have set the envelope for the second phase of the spending review, which we will stick to, but I say again that will involve very tough choices on spending and they are choices that we are prepared to make.

My Lords, does my noble friend the Minister agree that the global uncertainty we are now witnessing reinforces the need for economic growth, through both the policies that the Government are now pursuing and other means?

I absolutely agree with my noble friend. Growth was one of the biggest failures of the previous Government and we are determined to turn that around. The OECD recently upgraded our growth forecast, which means that the UK’s economy is now growing faster than those of Germany, France, Italy and Japan over the next three years. Following the Budget, the OBR increased its forecast for GDP for 2024 and 2025 and, for the first time, it has looked at the growth impact across a decade. It is particularly clear that capital investment, which the party opposite opposes, will lead to a significant increase in growth over the longer term.

My Lords, the Minister will be aware—at least, I hope he is—that global Governments’ debt at present is running at about $95 trillion. That is expected to rise to $130 trillion in three years’ time. He is right that there are some countries where the debt is higher than ours at present, but does he accept that it is about not only the size of the borrowing but the bond markets’ and world opinion about the commitment of a Government to enterprise and growth and to dynamic economic policies, particularly affecting small and medium-sized business, which of course is 99% of all business? Will he therefore have a word with the Chancellor to ensure that she recognises that in her next Budget, as she did not seem to in her last Budget, because it would greatly improve our standing and may save us a few tens of billions in interest on our present enormous debt?

I am happy to say to the noble Lord that the Government are absolutely committed to working in partnership with business to grow the economy and to doing what is required to do so. As he knows, the Government are committed to economic and fiscal stability. We have put in place those robust fiscal rules, and there is a significant fiscal consolidation during the course of this Parliament, taking borrowing as a share of GDP from 4.5% to 2.1%. If achieved, this would be the biggest current budget surplus in over 20 years.

My Lords, the growth of which the Minister speaks will need investment and, given the state of the public finances, a significant proportion of that investment has to come from the private sector. In my experience, that sort of investment requires not just a realistic analysis of the present but a persuasive picture of the future. The Minister has rehearsed the analysis of the present, but does he agree that the Government have to step up and better articulate their vision of the future in order to attract the investment that this country so desperately needs?

I agree with a lot of what the noble Lord says. He and I are both strong supporters of an industrial strategy. The Government’s new modern industrial strategy is a core component of what the noble Lord is asking for. We are introducing a new industrial strategy that will give the private sector the guidance it requires about the sectors that we would like to see investment coming into. We are doing planning reform, which is one of the biggest reforms that we can possibly do to unlock new levels of private sector investment in the economy. We are doing pension reform, which the Chancellor set out in her Mansion House speech. We are doing skills reform—another key component of unlocking investment in our economy. All those things will significantly boost growth in our economy, but none of them is yet included in the OBR’s forecast.

My Lords, how concerned are the Minister and His Majesty’s Treasury that £9.6 billion of cash was withdrawn last year from the London Stock Exchange—the highest amount on record?

Clearly, ensuring that UK businesses have access to finance is crucial to this Government’s economic policy.

My Lords, further to the point from the noble Lord, Lord Fox, about investor sentiment, the pound has suffered its biggest three-day slide in two years, and this morning’s yield on 30-year government bonds has risen to 5.385%. That is the highest level seen since 1998. Does the Minister accept that the pound’s weakness and the bond sell-off signal that investors are sceptical about the Government’s growth ambitions and particularly the impact of the October Budget?

I repeat to the noble Lord what I said in my opening remarks. Financial markets are always evolving, so it is a long-standing convention that the Government do not comment on specific financial market movements. I will not break that convention today. Financial market movements, including changes in government bond or gilt yields, which represent the Government’s borrowing costs, are determined by a wide range of international and domestic factors.

My Lords, the Minister quite rightly said that the Opposition, when in government, had been irresponsible in their economic policies, but does he not agree that their unfair and unjustified criticism of this Government is equally irresponsible and unhelpful?

I am happy to agree with my noble friend that any criticism of this Government is unhelpful.

Oh!

I am grateful to my noble friend for reminding me to remind the House of when Liz Truss crashed the economy with unfunded tax cuts and unrealistic spending plans, undermining the institutions that are crucial to economic stability—the Treasury, the OBR and the Bank of England—and when she pushed up mortgage rates by £300 a month, for which working people of this country are still paying the price. It is extraordinary that we have had no apology from the party opposite for that.