My Lords, the Finance Bill implements the taxation provisions of the emergency Budget Statement of 22 June. These will come to about 20 per cent of the total fiscal tightening which has been planned in this Parliament. So the Finance Bill as we have it before us is part of the Government's programme for balancing the Budget over the next five years. In his opening speech, the noble Lord, Lord Sassoon, said that a failure to address the deficit is the greatest danger we face. I would say that the failure to address the hole in the economy is the greatest danger we face and that unless the noble Lord is able to demonstrate how cutting the deficit will produce an economic recovery, there is a massive hole in his speech. I listened in vain

I don't wish to examine the structure of George Osborne's emergency Budget, but to analyse its logic. On the structure I have only this to say: the balance between increased taxes and reduced spending is probably right. It is right to demand sacrifices from all sections of the community, though I doubt the attack on welfare benefits (designed to save £11bn a year by 2014-15) will be seen by many as fair. And there are a number of useful measures to encourage enterprise. My objection is to its overall fiscal – and ideological – stance. It is deflationary – not as deflationary as the Chancellor's rhetoric demanded – but deflationary all the same.

 In 1974, Edward Heath asked: “Who governs – government or trade unions?” Five years later British voters delivered a final verdict by electing Margaret Thatcher. The equivalent today would be: “Who governs – government or financial markets?” No clear answer has yet been given, but the question may well define the political battleground for the next five years.

 

In one sense, next week’s emergency Budget is simply the logical working out of an intellectual theorem. The implicit premise of the coming retrenchment is that market economies are always at, or rapidly return to, full employment. It follows that a stimulus, whether fiscal or monetary, cannot improve on the existing situation. All that increased government spending does is to