Economy: Effect of US “Fiscal Cliff” Solution

Lord Barnett Excerpts

Tuesday 8th January 2013 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what assessment they have made of the effect of the “fiscal cliff” solution in the United States on the United Kingdom economy.

[Lord Newby]

My Lords, the Office for Budget Responsibility based its December 2012 forecasts for the UK economy on the assumption that fiscal policy would be tightened in the US by between 1% and 2% of US GDP. This is what is now happening. The Congressional Budget Office’s assessment of the American Taxpayer Relief Act, the measure agreed by Congress last week, is that it will produce a fiscal tightening of 1.7% of US GDP.

[Lord Barnett]

Of course, my Lords, the cliff-edge solution did not solve any fundamental problem, any more than our fundamental problem in this country has been solved. That problem requires us to achieve sustainable growth. The Government are taking a few steps in that direction with their infrastructure plans but none of those will do anything now, and urgent action is needed now. Does the noble Lord accept that one way of doing that would be for the Government to find some modest capital, comparatively speaking, because companies are simply not willing to borrow, whether under guarantee or not? The Government will have to kick-start infrastructure if they want to see growth start. Does he agree that that would be a way forward?

[Lord Newby]

My Lords, the noble Lord will recall that in the Pre-Budget Statement my right honourable friend the Chancellor announced another £5.5 billion of additional capital spending on roads, science infrastructure and schools, and that earlier in the autumn we passed an Act providing guarantees for £40 billion for infrastructure and another £10 billion for housing. The Government are making considerable efforts to increase the amount of infrastructure activity.