Public Sector Borrowing Requirement (Hansard, 15 July 1993)

1. Mr. Alan W. Williams
To ask the Chancellor of the Exchequer what are the latest figures for the PSBR since 1 April; and if he will make a statement.

§ 8. Mr. Thurnham
To ask the Chancellor of the Exchequer if he will make a statement on the current level of public sector borrowing.

§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
In the first two months of the financial year, the public sector borrowing requirement was £9.3 billion. A deficit of that magnitude is too high and we intend to reduce it.

Mr. Williams
During the 1992 Budget debates, the Chancellor's predecessor, the right hon. Member for Kinston upon Thames (Mr. Lamont), published Treasury forecasts of a borrowing requirement of £32 billion this year, falling to £25 billion next year, £19 billion the following year and £6 billion by 1996–97. In reality, we have a deficit of £50 billion this year and, far from falling away as was predicted, it is a recurring deficit, the Chancellor's biggest problem and an albatross around the neck of the country's economy, perhaps for years to come. Can he explain to me, and to the people of this country, why we were so misled at the time of the general election, and how the Government have got us into this mess?

§ Mr. Clarke
The hon. Gentleman will find that all forecasts for the PSBR tend to be hedged around with uncertainty. A range of forecasts is being made about next 1096 year and £50 billion is the Government's current forecast, which is at the upper end of the range. One thing of which I am quite sure is that the forecasts will all have changed by the time that I get to the Budget, let alone at any other time. I propose to make a judgment in the light of the circumstances prevailing when we get to the November Budget.
The hon. Gentleman makes a valuable point, however. The deficit was not planned, or the result of anticipated action. To the surprise of almost every forecaster, the recession in this country was more persistent and lasted longer than anyone expected, thereby causing a longer fall in revenues than anyone expected. The Government have to face up to the consequences of that, and Britain will be one of the foremost countries in Europe in tackling its fiscal deficit.

§ Mr. Thurnham
Will my right hon. and learned Friend confirm that, unlike the right hon. Member for Yeovil (Mr. Ashdown), the Conservative party has no intention of further expanding the PSBR and placing a greater burden on future generations? Also, was it not the last Labour Government who had to run to the International Monetary Fund because they could not control public spending either?

§ Mr. Clarke
My hon. Friend is correct. Quite rightly, we face questioning about the size of the PSBR from the Opposition as well as from our own supporters. I get pressed by Conservative Back Benchers to take vigorous action to deal with it. It is impossible for either the Liberals or the Labour party to make a speech from the Opposition Benches without advocating measures that would increase the amount of public sector debt and borrowing. That makes their contribution to debate on the issue seem somewhat irrelevant to real life and to the task of sustaining our recovery and getting out of the recession.

§ Mr. Sheldon
In the light of the horrendous PSBR, why is the Chancellor of the Exchequer excluding the one area that is easy for him to handle—the level of higher rates of income tax? Those were reduced at a time when the Government thought that the economy was doing well. Now that he understand the reality, why does he not reverse the process?

§ Mr. Clarke
Because throughout the 1980s extremely valuable supply-side effects resulted from reducing direct taxation from the disgraceful and punitive level at which it was left by the previous Government. I have made no decisions about taxation for the Budget.
The right hon. Gentleman, with his experience, knows perfectly well that the revenue-raising consequences of increasing the top rates of income tax are quite slight, but he typifies what I just described—that the only solution that the Opposition can ever think of, in response to such problems, is to put up taxation on somebody or other. If that is the Opposition's only approach, it is damaging to the country's prospects of doing well in the economic world.

§ Sir Peter Tapsell
In the same spirit that I heretically urged his predecessor, in the salad days of Friedmanite monetarism, to show caution about the Treasury's capacity accurately to measure sterling M3, may I now counsel—it may not be necessary, but, as I have already prepared the question, I shall go ahead—a little caution to my right hon. and learned Friend before he prostrates 1097 himself before the altar of a £50 billion PSBR estimate, because that notoriously unreliable statistic could lead us into unnecessary difficulty? As experience has shown, the outcome may prove to be billions wide of the mark—no pun intended—either way.

§ Mr. Clarke
My hon. Friend, who knows me well, realises that I have never drunk of the pure milk of monetarism, any more than he or Lord Lawson did. That remains my view, which is why I dealt with some scepticism with the question about previous forecasts of the size of the public sector borrowing requirement.
Nevertheless, it is important to underline the fact that we face a serious problem. The figure that I gave in answer to the question from the hon. Member for Carmarthen (Mr. Williams) shows that, at present, the monthly PSBR is running in line with the forecast. If it falls faster than I expect, I can probably deal with any problems that that may cause with considerable ease.
However, it is preferable for me to take those forecasts as the best that we have and ensure that I do not just assume that things will come out better but behave prudently and ensure that we are certain that we will get our fiscal deficit down. At the moment, it is one of the principal obstacles that would otherwise lie in the way of sustaining our recovery, which is why it is so blindly irresponsible of Opposition Members simply to suggest that I put up some spending and some taxes.

§ Ms Harman
Will the Chancellor tell the House that he totally repudiates the proposals of the Tory 1992 Group, particularly its proposal that he should cut 5 per cent. of the public sector work force? Given that that is 300,000 people and that making them unemployed would add £2.7 billion to the dole bill, does he agree that the way to reduce the deficit is not to put more people out of work but to bring unemployment down?

§ Mr. Clarke
I had an extremely friendly and useful discussion with the executive of the 1992 Group, who presented me with proposals to deal with the problem. Their proposals were infinitely more worked out than any yet produced by the Labour or Liberal parties. I share the instincts of my colleagues in the 1992 committee working group—I think that they call it that—that, in the interests of the economy and taxpayers, we should look first at means of restraining public expenditure. It is hopeless to regard public services, as the hon. Lady always has, as a kind of job creation agency. We can deliver high-quality public services in a more cost-effective way. One has only to look at the effects of contracting out on local government services, and the amount that that is now saving council tax payers in various parts of the country, to see what can be achieved.