John Redwood: A Budget good for savers, industry and exporters

However debt interest will be higher than the education programme next year, despite the Government’s best endeavours.

Unless we carry on to make good and rapid progress to get the deficit down and eliminate it, this debt burden will build up and future governments will find they are spending more and more money on debt interest and have less and less for the public services that our electorates expect us to provide.

I would like to clear up a common misunderstanding about how that is being done that I think has occurred because of the use of jargon and economists’ language in describing the process. The reduction in the deficit has been described as 80 per cent by spending cuts and 20 per cent by tax rises. That is true if the programme is successfully completed by 2018 and if we measure it as a percentage of GDP at that point, but that is not how most people think about how an excessive deficit is 
curbed.

If we have a large deficit in our own accounts, we have either to find a way of earning more money or to make immediate cuts in the amount of cash that we spend. I think a lot of people outside the House of Commons think that, because we inherited a deficit of £160bn, 80 per cent by spending cuts meant £132bn-worth of cash cuts in public spending. Of course it does not, and I am very glad that it does not, because that would have done huge damage to important public services.

What the Government have decided to do is limit the rate of increase in public spending and promote a more active economy so that tax revenues eventually catch up, and we are in that long process. The first three years of this Government saw very little growth in the economy, which delayed the reduction in the deficit because we did not get the surge in tax revenues we were hoping for. Now it looks as if there is better news, with faster growth coming through, and so the process can be completed, assuming the economy still recovers.

I had thought we might cut public spending in real terms in the first two or three years, but it appears from the
latest figures that there was a small real increase in public spending. In the first three years, current public spending went up by more than inflation, and if we look at the impact on the economy as a whole, it gives the lie to all those who suggest too much was cut too soon, and that that reduced output and was the cause of the delay in growth.

If we look at the attribution of growth and decline in activity and incomes, we see that the public sector made a small positive contribution to the economy in every one of the first three years of the coalition Government. I hope that reassures some of those on the Opposition benches who felt too much was being cut and damage was being done. The good news is that it was not.

I am pleased that the Chancellor made some moves on energy. We need a much bigger and stronger industrial recovery than we have generated so far. The first thing we need to do to is to go for cheap energy. America is going for cheap energy, and it is re-industrialising very quickly.

America is now super-competitive against companies in the European Union. A leading chemical major in Germany has recently said that it will put more of its investment abroad, outside the EU altogether, because, in the light of the energy crisis, the gas feed stock is uncompetitive. We need to find that gas and to get it out as quickly as possible. We need to match the United States’ shale revolution if we wish to save our high-energy-using industries and to re-industrialise and give some hope to the northern cities in particular, with their long tradition of industrial activity, because they need much cheaper 
energy.

We need to do more for savers, and I am delighted by an elaborate and interesting set of measures from the Chancellor on saving.

This Budget needs to be good for savers, for industry and for exports, and we are going in the right direction. It will help to promote a bit more growth, and only if we get a lot of growth will we get out of this debt bind.