Lord Low of Dalston asks the government to clarify how much it has reduced the deficit by since it took office and to clarify a discrepancy in figures.
I'm becoming increasingly concerned about the gap between what the Government says about the economy and what is actually the case. In recent weeks we have heard quite a lot of the claim to have reduced the deficit by a quarter. Last Thursday, 28 June, the Treasury Minister, Lord Sassoon, repeated this at Question Time in the Lords in answer to a question from Lord Barnett, stating that they had "already reduced the current budget deficit from 11 % to 8 % of GDP in two years". Recalling that I had read something about this on the blog of Jonathan Portes, Director of the National Institute of Economic and Social Research, I got to my feet and put it to the Minister that the deficit on current spending has hardly changed over the last year and that almost all the reduction in the total deficit has come from cuts in investment spending, which don't reduce the current deficit. The Minister responded that this was not correct and referred to cuts in departmental spending and the cut in fuel duty. This of course had nothing to do with it and wasn't a cut anyway but only the postponement of an increase. And the cuts in departmental spending add nothing to the overall totals and are in fact comprised within them.
So I contacted NIESR and was relieved to find that I had got it absolutely right. Public sector net borrowing has been cut from £158,5 billion in 2009-10 to £127,5 billion in 2011-12. However the deficit on the current budget has only fallen from £110 billion to £99,5 billion over that period, while net investment has fallen from £48,5 billion to £28 billion. In other words, two-thirds of the deficit reduction has been achieved by cutting investment. Moreover, looking just at the last year, 2011-12 compared to 2010-11 which is the period I specifically referred to, net investment fell by £10 billion, while the current deficit fell by only £3 billion. So more than three-quarters of deficit reduction came from cuts to investment. In fact in the last financial year, the current deficit fell by only about one thirtieth. So I am forced to conclude that Ministers are prepared to fob you off with any old story regardless of its relation to the facts.
This is not the only example of this. In the debate on the Queen's Speech, Lord Sassoon told Lord Skidelsky that sustainable recovery was underway. When I asked him on 29 May how he squared that with the fact that we were in double dip recession, he palmed me off with references to the success of the private sector in generating jobs and exports. No sooner were the words out of his mouth than manufacturing output plummetted. It is up a bit in June, but yesterday we learned that activity in the construction sector had fallen at the fastest rate for two and a half years.
So this afternoon I shall be asking the Minister what he has to say about this and whether we can believe a word of what he says when he has said it.