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John Redwood: We will all pay the bill for Labour's fantasyland Budget
THIS has been the Damian McBride memorial Budget. It was a Budget of the spinners, by the spinners, for the spinners. It was a Budget telling people to believe that it will all be fine in a couple of years' time. It was a Budget built around numbers that are fantasyland figures.
The Budget pretends that there will be massive growth in two years' time. That growth will miracle away the enormous deficit and the huge debts that will be the Government's legacy.
A few months ago, the Government was in denial that there was even a recession in the United Kingdom. This is a Government who would not admit six months ago that they were presiding over the worst collapse of the public finance figures that we have ever seen.
This is a Government who a year ago, at the time of the 2008 Budget, said that there would be a little drop-off in the growth rate, but that Britain would come sailing through because they were married to Prudence and had abolished boom and bust.
The Prime Minister – the former Chancellor – divorced Prudence many years ago. Now they are holding a drink and drugs party on the poor lady's grave, inviting everyone to come along and spend as much borrowed money as possible.
I do not think that the Chancellor ever met the lady Prudence. We needed a Budget to begin reining back public sector excess, to start to curb the deficit. Instead, he is still increasing spending, as if the whole world wanted to lend him more money. The Government proposes gross borrowing of 417bn in the two years 2008-10. That's more than all previous governments borrowed in this country, in aggregate. That's 7,000 for every man, woman and child.
How did the Government get into such a dreadful quagmire?
There are three main reasons. First, they foolishly, rashly and needlessly committed this country's public accounts to two extremely large banks – banks which were too big to fail and too big to bail.
The Government was quite wrong to force those banks, over the fateful weekend in question, into trying to find capital that quickly.
They were quite wrong to say that the taxpayer would buy all those new shares at too high a share price. There were many ways of sorting out and standing behind those banks without putting all that taxpayer cash on the line, by acting as their tough bank manager and lender of last resort.
They now admit they will lose 60bn on these transactions, or 1,000 for every man woman and child. The IMF thinks it will be 200bn, or more than 3,000 each.
The second reason we are so deeply in debt is the very violent boom-bust cycle that they have unleashed upon our poor economy. This is a boom-bust cycle that was made particularly violent by wrong policy here in Britain.
This is the Government that, when it was becoming obvious to many outside critics that a huge credit explosion was underway, decided to stoke the credit fire some more.
This is the Government who, instead of saying to the private sector, "You're overdoing the off-balance-sheet borrowing," went out and said, "Do more off-balance-sheet borrowing. We'll show you how to do it. We're going to finance most of our public projects on the never-never on an
off-balance-sheet basis so that people don't realise that we're building up extra public debt. We can then break our own rules of Prudence without letting on that we are".
The Government made the cycle worse by the lack of spending discipline and by the over-borrowing in the public sector.
The third reason for the huge debt has been the giddy acceleration of wasteful and undesirable public spending. We are now a country oversupplied with spin doctors, elected representatives, advisers, consultants to the public sector, glossy brochure writers, civil servants, quangos and layers of government.
There is a huge divide in modern Britain between those who work in the public sector and those who work in the private sector.
The big divide is between those who are trying to run small and medium-sized entrepreneurial businesses and their staff, and those who are in the large bureaucracies of the public sector – those in the quangos, the councils and the Whitehall departments.
There is a monumental sense of injustice, because when the public sector talks about tough choices, they talk about whether to increase public spending at two per cent,
or one per cent more than the inflation level.
They ask whether they are going to have three nice extra things or one nice extra thing in their budgets. Meanwhile, people in private sector companies have to talk about whether they close one factory or two factories out of their three or four, and whether they get rid of 20 per cent of the workforce today or whether they may have to fire 25 per cent of staff in two months' time because demand is so low.
It is this huge divide in Britain that is so unfair and that is causing so much anger. The Government needed to start to bridge the gap of its own huge deficit by controlling public spending. It needed to do something radical, like scrapping ID cards, regional government and some of its quangos, and placing a recruitment freeze on non-frontline public
sector staff.
It needs to show it understands it is borrowing too much and that one day we all have to repay the money. As David Cameron said, the way out of this problem is through saving, investing and exporting. We have had the years of borrowing, importing and spending foolishly. We now have to pay the bills.
John Redwood MP is leader of the Conservative policy group on economic competitiveness
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