Michael Fallon

Only a bankrupt Labour chancellor could welcome a £167 billion deficit as an improvement

Remember mock exams before the Easter hols, practice for the real thing in the summer term? That was the Labour budget, and it failed the big tests: tackling the fiscal deficit now, getting the economy moving again, and rebuilding business and market confidence.

Alistair Darling was rare amongst chancellors in being unable to choose an election budget. The public finances are so completely bust that he couldn’t have afforded a giveaway budget even if he’d wanted one. He calls this “workmanlike”; I call it impotent.

Only a bankrupt Labour chancellor could welcome a £167 billion deficit as an improvement. This from a government that hasn’t balanced the budget for nine years, that has presided over falling public sector productivity and that has seen unit labour costs fall back to pre-ERM levels.

Eight years of pain lie ahead, even on these optimistic growth forecasts, but we will not learn the truth about the £30-40 billion of spending cuts that are needed until the autumn. There’s a real danger now that the markets will take matters out of the hands of these failed ministers, and drive the long-overdue fiscal correction. On current bond spreads, even the Italians can service their borrowing more cheaply; yesterday’s budget will ring alarm bells with investors in sterling.

Like Greece, Brown and Darling have been warned by the credit ratings agencies, by the European commission, by the IMF, and by the governor of the Bank of England too, that they need a more credible plan and to start it now.

But just watching our imploding public finances is to repeat Edmund Burke’s mistake with the French Revolution: he pitied the plumage but forgot the dying bird. Out there the real economy has stalled: business investment has almost halved, manufacturing output is still falling, exports collapsed by 12 per cent over the last three months – the biggest drop on record. The British economy is now a hung economy, half in, half out of recession.

Small shops are struggling; businesses can’t access cheap credit. One-third of those unemployed in my Sevenoaks constituency are under 25. Yet Labour is committed to tax both the lower-paid and their employers even harder, increasing National Insurance contributions next year on everybody earning over £20,000 a year.

There is a better way: immediate action to tackle the deficit and to get the economy moving. An honest programme of spending cuts and cheaper government can combine with lower business and employment taxes to kick-start the economy. I hope a Conservative Government will think bigger and be bolder.

Cutting spending cannot be painless. But it doesn’t become any more painless by being postponed. The public will accept cuts that are honest and fair. That means spreading the burden– freezing public sector pay but also reducing some middle class benefits, tackling the cost of public sector pensions but removing some private pension reliefs, restoring incentives to work but protecting the most vulnerable.

But growth is the key: we have to rebuild the 5-6 per cent of GDP that we lost in the recession. That means recommitting to an enterprise economy, so damaged by years of Labour’s misallocated resources. We need lower NI rates and less red tape for all small businesses, more help for exports; genuine welfare reform; smaller but better government.

Whoever wins the election, there’ll be another budget in the summer. Either the Conservative budget that we plan or, if Labour somehow hang on, an emergency budget that the markets will require. Either way that one will be the real thing.

Daily Telegraph 25th March 2010