On Tuesday, the Chancellor gave his annual Autumn Statement. He also published the independent Office for Budget Responsibility's (OBR) assessment of the economic outlook (he deserves a lot of credit for setting up an independent organisation to produce these forecasts - in the past, Chancellors have been tempted to put a positive gloss on the figures; economic forecasting is a pretty inexact science but at least now we know we are getting the experts' best guess as to what is going to happen).
I'm sure it won't surprise you to learn that the OBR's assessment made for pretty grim reading. As a result of the crisis in the Eurozone, higher than expected inflation and new data which suggests that the last recession did even more damage to our economy than originally thought, they have significantly reduced their forecast of how much the economy will grow this year, next year and the year after.
As a result, the Chancellor is having to make some additional savings and even with these savings it is going to take longer than he originally planned to eliminate the record deficit that we inherited from the last government and get us to the point where Government debt as a proportion of national wealth is falling.
And the OBR warn that if there is a disorderly collapse of the euro things could get even worse.
Ed Balls, responding to the statement for Labour, said the OBR's forecast showed that the Government's strategy isn't working but if you read the OBR's report (you can find it here if you are interested) it is very clear that they have downgraded growth projections for the reasons referred to above, not because they have changed their minds about the impact that this Government's policies are having.
Having criticised the Government for not reducing borrowing quickly enough (without apologising for building up the debt in the first place), Mr Balls then said we should cut taxes, increase spending and borrow even more. Now we'd all like to pay less tax and we'd all like better public services but think for a moment what the consequences of following his advice would be.
When this Government came to power, we didn't have a credible plan to reduce debt and as a result our credit rating was on negative outlook and our market interest rates were higher than Italy's. 18 months later, we are the only major western country which has seen its credit rating improve and our market interest rates are less than 2.5% whereas Italy's are 7.2%. What does this mean for you and I in practical terms? Well, a one per cent rise in market interest rates would add £1,000 to the average family's annual mortgage payments. In other words, if we listened to Mr Balls and borrowed even more money and the markets lost confidence in our ability to repay this debt as they have with Greece and Portugal and Italy, the higher mortgage payments we would all be facing would dwarf the extra money we would have as a result of tax cuts. His plan is the equivalent of taking out a high interest loan when you've maxed out your credit card, rather than cutting down on your spending. And not only would it mean higher interest rates and mortgage payments for many of us, it would load our children with even more debt. How is that fair?
The blunt truth is you can't borrow your way out of a debt crisis. Painful as it is - and I appreciate that it is extremely painful for many of my constituents - we have no alternative but to start living within our means. As a result, the Chancellor had very little room for manoevure yesterday. But by making some additional savings - eg not increasing spending on overseas aid by as much as planned (though still meeting our promise to spend 0.7% of our national income) - he found some money for some important initiatives to help families struggling with the cost of living and small businesses such as:
- doubling the number of two-year old children who will receive 15 hours of free nursery care a week (40% of all children will now receive this with a focus on the most disadvantaged families);
- reducing the planned increases in rail fares from inflation + 3% a year to inflation + 1%;
- cancelling the proposed increase in fuel duty in January and reducing the planned increase in August;
- extending the business rates holiday for small businesses to April 2013; and
- introducing a national Loan Guarantee Scheme to reduce the interest rates small businesses can borrow at.
He also found some money for extra investment in infrastructure to try to get the economy moving. Two areas of particular benefit to Croydon are:
- £1.2 billion to provide new school places, half of which will go to local councils like Croydon with the greatest need and half of which will go on new free schools; and
- £80 million for 130 new train carriages to tackle overcrowding on south London rail services.
And he confirmed that the basic state pension will rise by £5.30 next April, the largest ever cash increase.
All in all, then, difficult times ahead but the Chancellor is taking the tough decisions to get us through the storm and he has done what he can, within the very limited means at his disposal, to help small businesses and struggling families.