HC Deb 16 May 1996 vol 277 cc1056-8
2. Jenkin

To ask the Chancellor of the Exchequer what is the latest projection for the public sector borrowing requirement in the current financial year; and if he will make a statement. [28490]

The Chief Secretary to the Treasury (Mr. William Waldegrave)

The Budget forecast of the PSBR in 1996–97 was £22i billion. An updated forecast of the PSBR will be published in the summer economic forecast on 9 July. Excluding privatisation proceeds, the PSBR fell by £8 billion in 1995–96.

Mr. Jenkin

Does my right hon. Friend agree that, although borrowing remains high, tax cuts, however desirable they may be, should not be imposed on the economy at the wrong moment? We remain, however, committed to reducing taxation because we regard taxes not as a bribe, but as being vital for the British economy's future competitiveness.

Mr. Waldegrave

The fundamental difference between Conservative Members and Labour Members is that we stand for cutting taxes and they stand for bigger spending. We will seek to cut taxes, but it must be based on proper control of expenditure, which, in the past three years, we have been delivering much better than any Government for many decades. Future taxation cuts must be based on tough control of public spending.

Mr. Sheldon

Is the Chief Secretary aware that the European Commission has forecast that, next year, this country's financial deficit will be worse than that of any other European Community country apart from Italy and Greece? As the criterion for economic and monetary union is based on that, how does he intend to meet that criterion, if he were to decide to enter EMU?

Mr. Waldegrave

The Community's deficit forecasts yesterday, especially those for the French and German Governments, fell quite smartly. If they go on falling so smartly, they will have disappeared altogether by tomorrow teatime. The Community's forecast for our deficit is based, I am sorry to say, on an assumption that there will be about £10 billion more spending. That will not come from the Conservatives. I fear that the Community may have fallen into the trap of thinking that we are going to have a Labour Government, which of course we are not. That is the only explanation for it assuming at least another £10 billion of spending.

Mr. Marlow

As my right hon. Friend has said, borrowing is one of the convergence criteria for monetary union. Regardless of whether Britain joins the monetary union on 1 January 1999, it is of great interest to the UK whether other countries in Europe do. What is my right hon. Friend's full view on whether Germany and France will meet the convergence criteria for borrowing?

Mr. Waldegrave

I entirely accept the view put forward by their Governments that they will do remarkable things to public spending and hit the targets. Let us hope so. It would be very good for the economy of Europe if they better controlled spending and joined us in what the International Monetary Fund calls the group of low-spending countries with flexible economies. That would be good for them and, indeed, for us.

Mr. Harvey

Will the Government give a commitment that they will set tax levels in this year's Budget that will deliver a borrowing requirement next year within the 3 per cent. Maastricht convergence criteria?

Mr. Waldegrave

I do not think that my right hon. and learned Friend the Chancellor, who is responsible for those matters, entirely takes the view of Commissioner De Silguy. There was a slight mixture in the Commissioner's report yesterday. There was a grey area about growth—unfortunately, only the British had any growth—and there was a rosy area that all the other countries were converging. I would rather stand at this Dispatch Box, as I think would my right hon. and learned Friend the Chancellor, delivering the best growth in Europe, the lowest unemployment in Europe and doing the right thing for the British economy. That is what my right hon. and learned Friend will continue to do.

Dr. Spink

Does my right hon. Friend agree that if we could cut public spending to 35 per cent. of the national wealth, it would enable us not only to lower the PSBR, but to continue to grow at a fast rate and therefore create the wealth that we need if we are to care better for vulnerable people?

Mr. Waldegrave

We have to get spending as a proportion of national income down to 40 per cent. before we get it down to 35 per cent. My hon. Friend makes a sound point. It was very interesting that a recent very detailed IMF study showed that the high-spending group—fundamentally the northern Europeans, such as Sweden, which spends up to 70 per cent. of GDP, while France and Germany spend very much more than we do—does not seem to benefit from it, certainly not economically, and not even in welfare terms. So the argument about bringing down the Government's public spending as a share of GDP should be undertaken not only for economic reasons but because of jobs and welfare in the economy.

Mr. Andrew Smith

To bring the Chief Secretary back to some coherence and the United Kingdom, given that public borrowing last year overshot by £10.7 billion and independent City forecasts are already saying that this year it will overshoot by £3.6 billion, will the right hon. Gentleman admit that the weak state of public finances, which is not only due to the Government getting their forecast wrong, privatisation receipts being lower than expected, or even because VAT and corporation tax receipts are lower, but is because growth has been lower than the Chancellor promised, means that the British people will not be able to believe a single word that the Government say about the state of public finances between now and the general election?

Mr. Waldegrave

Perhaps the hon. Gentleman will tell us whether he wants to cut spending or put up taxes. I do not think that he wants to do either.

Mr. Tony Banks

Wait and see.

Mr. Waldegrave

"Wait and see", says the hon. Gentleman with some nervousness from the Back Benches. The UK is the only major country that has cut its debt-to-GDP ratio since 1979. All the other big economies' ratios have gone up. Does anybody believe that that would have happened if Labour had stayed in power after 1979? Of course not.

Mr. Congdon

In view of the nervousness that Opposition Members have expressed in the Chamber because the Government will be in a position to offer more tax cuts in the November Budget, will my right hon. Friend confirm that we shall continue to restrain public spending so as to provide room for tax cuts that will give people more money in their pockets to spend in the way that they think best, rather than their being dictated to by Government, as is proposed by the Labour party?

Mr. Waldegrave

There are two fundamental Conservative criteria, the first of which is to maintain sound management of the economy. The European Community report published yesterday put us at the top of the growth league not only for next year but for the following two years as well. The most fundamental benefit that my right hon. and learned Friend the Chancellor has delivered to our economy is sound low-inflation growth, and we shall not throw that away. Of course we shall continue to seek expenditure cuts, and if it is safe to do so, no doubt my right hon. and learned Friend will consider tax cuts—but only if we can find the expenditure savings.