Delivering the annual Mais lecture, Shadow Chancellor George Osborne set out the Conservative vision for a new economic model.
He argued that the debt-fuelled model of growth that the Government pursued over the last decade was fundamentally unsustainable, and that we need to move from an economy built on debt to an economy where we save and invest for the future. We have to deal with our debts to get the economy back on its feet.
He pointed to research which shows that the root cause of the economic crisis was an explosion of private sector debt, and that the biggest risk to the recovery is an explosion of public sector debt. High levels of public sector debt risk undermining growth.
He argued that the existing policy framework failed to prevent the crisis, is unable to deal with the current weakness of the economy, and won’t be able to stop it happening again. He set out a new economic model for growth based on saving and investment, and a new policy framework that can ensure that private and public debt are sustainable in the future, including:
· A new system of financial regulation, with the Bank of England back in charge of controlling the overall level of debt in the economy.
· A new fiscal policy framework, with an independent Office for Budget Responsibility to ensure that public debt is sustainable.
· A supply side revolution that releases the pent up enterprise and wealth creation of our country, encourages a nation of savers, and addresses long term structural weaknesses like poor education and a welfare system that traps people in workless poverty.
He also explained why the Government’s argument that we can afford to wait until 2011 before dealing with the deficit is complacent and puts the recovery at risk, and explained why we need to start dealing with the deficit in 2010:
· Confidence: a lack of confidence in the sustainability of the public finances is already undermining the recovery.
· The realities of markets: those who argue we should ignore financial markets are siren voices. If Britain loses the confidence of international markets the result would be emergency cuts that would indeed be swingeing and savage.
· The realities of Government: real public sector reform takes time so starting early on the deficit creates space for more targeted cuts that protect the poorest and front line services.
For the first time he also set out in detail how the budget process would work following the election in the event of a Conservative victory:
· Phase One: the independent Office for Budget Responsibility will set out an independent audit of the nation’s finances, based on independent growth forecasts. Only then will anyone know the true scale of the fiscal challenge that faces whoever forms the next government.
· Phase Two: an emergency budget within 50 days will set out the overall fiscal path and spending totals that we will stick to over the years ahead, as well as some of the cross-cutting measures on pay, the cost of Whitehall, the review of the pension age, and the largest public sector pensions, that will help to put our public finances on a sustainable footing. It will take targeted steps to reduce some budgets in-year in order to build credibility and make a start on reducing the deficit. Crucially, the first Budget will also contain measures to boost enterprise, encourage new jobs and show that Britain is open for business.
· Phase Three: over the Summer we will work flat out to conduct the detailed departmental Spending Review for the years after 2011 that the current government has simply refused to carry out, and publish that results of that review in the Autumn.