Budget Responsibility and National Audit Bill [Lords]
(13 years, 1 month ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment 1, page 1, line 13, at end insert—
‘(d) the Treasury’s objectives in relation to economic policy and policy for the advancement of jobs and growth in the UK economy.
(e) the means by which the Treasury’s objectives in relation to economic policy will be attained (“the growth mandate”).’.
Mr Speaker
With this it will be convenient to discuss the following:
Amendment 3, in clause 4, page 2, line 20, at end insert
‘and the impact of Treasury policy on jobs and economic growth’.
Amendment 4, page 2, line 26, at end insert—
‘(c) an assessment of the extent to which the growth mandate has been, or is likely to be, achieved and the impact on employment and economic growth within all regions and nations of the United Kingdom.’.
Chris Leslie
It is fitting that we are discussing the Bill the day before the Budget. I understand that there are particular reasons, which the Minister will no doubt explain to the House, why the Bill needs to receive Royal Assent this evening, before we reach Budget day, so I am conscious that the ministerial clock is ticking. I pay tribute to the Public Bill Committee, whose members scrutinised the Bill in what I regard as sufficient detail.
Essentially, the first half of the Bill sets out the establishment of the Office for Budget Responsibility, and the second half makes a series of changes to the National Audit Office governance arrangements. It is fair to say that the Committee spent less time on the second half of the Bill, as the House had previously scrutinised many of those measures, but for various reasons that legislation was not included in the wash-up before the last general election. Most of our attention today will focus on the OBR.
Clause 1 relates not specifically to the OBR, but to the creation of a charter for budget responsibility. As we know, the Government have their reasons and rationale for making this set of legislative proposals. It was notable in Committee that Members were quizzical about why the charter for budget responsibility has been quite narrowly defined and why the OBR’s duties are similarly quite controlled and slimline. My view is that any realistic definition of budget responsibility must take account of the impact on jobs and growth of the wider economy and Treasury decisions on fiscal policy, particularly in the current context.
We know that Her Majesty’s Treasury is currently grappling to acquire a growth strategy, some of which might have been left on a number of photocopiers around the building before Treasury questions, although I have not been party to the memo that my right hon. Friend the shadow Chancellor picked up—I will try to get hold of him later to see what was in it. Clearly, the real economy has clashed with the Government’s plan A, which they have refused to depart from, which meant that in the fourth quarter of 2010, as GDP figures show, the economy went into reverse and shrank. The Chancellor blames the wrong kind of snow, but evidently the Government’s approach to fiscal policy has created circumstances that have not only put the brakes on economic growth, but unfortunately seem to have put it into reverse.
When we debated clauses 1 and 4 in Committee, Members felt that it was important to try to challenge the notion that we should somehow have an Office for Budget Responsibility that confines itself to fiscal, deficit and debt issues, to the exclusion of other equally important indices drawn from the wider economy.
Mr Mark Field (Cities of London and Westminster) (Con)
The course of events that the hon. Gentleman describes is surely a tribute to the independence of the advisory body—the OBR—during its first phase following last June’s Budget, but does he not share my concern that if it were to have the increased powers, it would cease to be advisory and independent, which it should be, and in some way would become a challenge to Treasury policy? It is correct that it has relatively limited powers, but above all those powers should remain independent and advisory to the Treasury.
Chris Leslie
I understand the hon. Gentleman’s point about creating a third institution when it should be Parliament’s job to challenge the Executive and the Treasury on their policies. The point we want to make through the amendments is essentially that, simply to have a fiscal mandate in the charter for budget responsibility is inadequate. We feel that it is important to have a growth mandate to supplement the fiscal mandate in the charter and, more than that, that the Office for Budget Responsibility should also have a duty to assess the impact of the Treasury’s policies on the real economy, on employment and on growth. I do not think that that necessarily sets the office’s face against or in juxtaposition to the Treasury—it would simply give it absolute clarity that it had the right and appropriate remit to consider those wider real economic effects.
Mr Field
But there is already a clear monetary mandate in the hands of the Bank of England. Surely a growth mandate along the lines that the hon. Gentleman suggests would muddy the waters, if not necessarily between the Treasury and the OBR, then between the Bank and the OBR?
Chris Leslie
Perhaps this is where I differ from the hon. Gentleman. I think that a slightly dry and narrow focus on the accountancy issues in the draft charter for budget responsibility, as well as a monetary policy focus at the Bank of England and in the charter, with no or scant focus on the real economy—economic growth, employment and some of those very important issues that affect all our constituents—would be a deficiency in the role of the OBR.
Mr William Cash (Stone) (Con)
The shadow Minister and I took part in a debate the other day that goes to the heart of these questions. Does he not agree that although fiscal policy is regarded—with qualifications as the result of the motion the Government put before the House the other day—as exclusively a matter for the House of Commons, unfortunately and disastrously, European economic governance affects the question of growth and the issues that go with it? Does he not agree that his proposals would be overtaken by the proposals that are going through the European Union?
Chris Leslie
I understand where the hon. Gentleman is coming from. I hope that he would acknowledge that we have tried to table a constructive set of amendments because we do not believe that a purely fiscal mandate for the Treasury or the OBR is wide enough. His view is that growth and fiscal policy will also be influenced from beyond these shores and especially by European Union policy. That may well be true.
Mr Cash
I do not wish to correct so much as to advise the hon. Gentleman that my position is exactly the opposite. Fiscal policy remains in this House and should do so, despite what the Government did the other day, and economic growth should also be determined here and not in other arenas. In the Public Bill Committee, he referred to judicial authority as a result of the interpretation of the statutory duties imposed in this place. Does he really want the Supreme Court to apply its determination of its ultimate supremacy over both fiscal policy and economic growth?
Chris Leslie
No, I do not. That was one reason why we raised this issue in Committee. The Bill sets out tests on the responsibilities of the OBR and the Treasury yet there was not really an adequate response from the Minister about the justiciability of those tests. For example, the Minister gave no cut-and-dried answer to the question of a member of the public who might wish to sue the OBR on its efficiency or effectiveness, what sort of legal process that might entail and where it would eventually go. The hon. Gentleman makes an important point.
In a cynical moment in Committee, I raised an eyebrow about the fact that 10 clauses are necessary to establish the OBR. I queried whether we needed 10 clauses to do that. The Bill contains a number of embellishments that, in a more sceptical moment, made me suspect that it was slightly padded out to make it appear to be a grander piece of legislation when a couple of clauses and a schedule would probably have done the trick. Perhaps I was unfairly cynical.
Kelvin Hopkins (Luton North) (Lab)
The hon. Member for Cities of London and Westminster (Mr Field) draws a useful parallel with monetary policy and the Bank of England, but in reality the bank’s Monetary Policy Committee currently interprets its remit flexibly because of the state of the economy. If the committee interpreted its remit rigidly, it would raise interest rates, because inflation is above the target level. It is not doing so, however, because it is sensibly looking at the wider interests of the economy.
Chris Leslie
My hon. Friend is entirely correct, and I am glad that the Bank of England is being flexible, but absolutely, if such mandates are set out rigidly in legislation, as the mandate is before us, and if they are interpreted as they currently are, it is hardly any wonder that the Treasury has a blinkered view of the economy and is obsessively—some might say, fetishistically—focused on deficit reduction and debt to the exclusion of almost any other facet of the economy. What we need right now is a flexible approach to economic policy which can take account of environmental and external facts, jobs and growth, and those are the issues we are raising today.
John Mann (Bassetlaw) (Lab)
I thank my hon. Friend for giving way on the point about flexibility. Where does he think the 2% inflation target, set for the Bank of England, should be, not least in the context of the Japanese economic crisis, with the pressures on US dollars and the insurance industry, and with the potential for rapidly growing inflation, which might require the 2% figure to be reconsidered imminently?
Chris Leslie
Of course, those issues are in the hands of the Chancellor. He has a Budget tomorrow, and I do not know whether he is thinking of revising his monetary policy mandate, but I would be very surprised if he were. My hon. Friend will notice, however, because I know he follows the small print of the Budget and of financial documents, that in the small print the Treasury has chosen for its GDP deflator, when it comes to public expenditure, an inflation rate of 1.9%, which is slightly at odds with the fact that the retail prices index is 5.5%. Again, the cynic in me would suggest that the Treasury has chosen that approach, because to do otherwise would blow a hole in the middle of the Government’s financial plans.
John Mann
I thank my hon. Friend for generously giving way a second time. The reason for exploring the issue is in this “charter”—this grandiose term—set out before Parliament. Chancellors might change their point of view, perhaps sensibly, if they look at the real economy, but how hamstrung will a Chancellor be in the future if some back-dated charter has been agreed but is itself too restrictive and requires change? Is not the measure before us rather a stranglehold—purely presentational—that could come to haunt this or future Chancellors?
Chris Leslie
My hon. Friend suggests that the measure is phantom paraphernalia, enrobing the creation of the Office for Budget Responsibility simply to give it a sense of grand importance, and in fact it could have deleterious consequences. That is certainly one crucial reason why we felt it important to table the amendment, stating that at the very least there should be a broader set of mandates within the charter, and that a growth mandate would be especially important.
Chris Leslie
Before I give way to the hon. Gentleman, I just want to point out that in Committee we debated the remit of the Office for Budget Responsibility and whether it should be broader and take account of wider economic and social policies. So, for example, we tested out the notion of whether the OBR could have responsibility for assessing the impact of Treasury policy on child poverty, or whether it should have responsibility for assessing the impartiality of the local government finance settlement.
One promise in the Conservative party’s localism paper, which came out before the general election, was to have the Audit Commission undertake an independent test of whether there was impartiality in the settlement. That has been dropped subsequently.
Chris Leslie
It has been dropped, and that is indeed something that we should come back to at another point.
This time, on Report, we thought, “Let’s look as strategically as anybody could possibly want to,” and having a growth mandate—a responsibility for growth and employment—and assessing the impact of Treasury policy seemed quite unobjectionable, at least to me when tabling the amendment.
Mr Field
It would probably be unwise for these provisions to be too wide. The credibility of inflation targeting would be undermined if the target were to be changed even on an irregular basis, if at all. As the hon. Member for Luton North (Kelvin Hopkins) said, the remit of the Bank of England covers not only inflation targeting but the greater interests of the overall economy. The latter remit is less well known than the former, but it is the reason interest rates have stayed at a very low level given the high levels of RPI and CPI that we are experiencing.
Chris Leslie
I would recommend that all hon. Members take a look at the draft charter for budget responsibility, which has several interesting facets. I have no doubt that the Minister will explain, in layman’s terms, what is meant by a
“rolling, five-year forecast period”
in relation to the cyclically adjusted current balance. Some hon. Members might find it difficult to envisage how that rolling forecast will operate in principle. Many of us can understand the concept of a fixed year or a fixed date against which a set of targets are to be judged, but if the horizon shifts continually, that is different. It would be interesting to hear the Minister explain that when she responds.
Mr Cash
I am sure that the hon. Gentleman also has in mind clause 6(3), which imposes the following obligation:
“The Office must, in the performance of its duty…act consistently with any guidance included in the Charter”.
As he well knows, I am rather particular about the words used in legislation. I like to know, first, what they mean and, secondly, what their consequence would be; I do not think that is unreasonable. I worry about the extent to which he would effectively be taking away from this House or, for that matter, from the Minister, any responsibility whatsoever for any aspect of the running of the macro economy. I have sympathy with his objective, but I am worried about how it fits into the framework of these provisions.
Chris Leslie
I would not want the hon. Gentleman to misunderstand the point of our amendment. It would, in essence, ensure that the charter for budget responsibility had a wide enough definition to give the new Office for Budget Responsibility, if it is indeed an independent body, more latitude to look across the wider set of economic indices and make its analysis and assessment of the impact of the Treasury’s policy on the ground—in the real world and the real economy—instead of looking merely at the desiccated issue of deficit reduction.
Stewart Hosie (Dundee East) (SNP)
I understand why the hon. Gentleman wants this provision, and I am not unsupportive. I am worried that he would conflate the work of the OBR with that of the Financial Policy Committee. We should remember that the FPC is charged with looking at the macro economy, which may well mean looking beyond monetary policy—the responsibility of the Monetary Policy Committee—and the macro-prudential. It might be able to look at the other aspects that he is expecting the OBR to look at, and that could muddy the waters even further. Does he see the potential for conflict between the OBR, with the role that he wants to set, and the FPC, with the role it is likely to have?
Chris Leslie
I understand where the hon. Gentleman is coming from. As I understand it, however, the Government, in creating the Financial Policy Committee at the Bank of England, propose to give it a particular responsibility for macro-prudential regulation. That is quite different from the role of the OBR, which, as an analytical and assessing independent body, will have a duty to provide comment and analysis on, and a degree of scrutiny of, the proposals of the Treasury and, more narrowly, the Treasury’s policy in relation to the accounting aspects of fiscal policy alone. If we are to have an Office for Budget Responsibility—or, as some hon. Members have suggested, the equivalent of the Congressional Budget Office, with some kind of parliamentary Budget office, which we will discuss later—it must be an independent body, so it must have the indisputable right to comment on the Treasury’s policies writ large on macro-economic and fiscal policy. I do not feel that there is necessarily a conflict with the Government proposals on changing financial services regulation, although we have not yet seen their proposals, and we do not really know what powers they intend to vest with the Bank of England on macro-prudential regulation. We will come to that another day.
I will explain why I think it is important that we focus on the concept of a growth mandate. It is not something that was just dreamed up by the Opposition. The Engineering Employers Federation has also called for a growth mandate to supplement the fiscal mandate in the charter for budget responsibility and in the Budget. It states that a growth mandate would
“send a powerful signal to business in the forthcoming Budget that government has a clear strategy to address the barriers to growth”
and calls for
“a Parliament long programme to deliver on it.”
Terry Scuoler, the chief executive of the EEF, has said that a growth mandate should be introduced to
“report on the progress at each Budget in the same way it does with the Fiscal Mandate.”
The EEF also states that
“like the Fiscal Mandate, the Growth Mandate should span the lifetime of a parliament with each subsequent Budget and policy announcement showing further incremental progress.”
The EEF makes a good point about the impact on the industries that it represents, which are in the real economy. Ultimately, that is what matters to our constituents.
Kelvin Hopkins
In line with that, would it not be sensible to ensure that the members of the OBR, when they are appointed, represent a range of views? The Monetary Policy Committee has hawks and doves, who have widely differing views on what should happen to interest rates. Equally, there ought to be voices in the OBR putting the case for the real economy, as well as simply for the Budget.
Chris Leslie
That is absolutely right. The Government have given the concession to the Treasury Committee that it can hold pre-appointment hearings for three of the five members of the OBR board. That is, of course, welcome.
Chris Leslie
We debated that point in the Public Bill Committee. Having consulted the Treasury Committee Chair subsequently, I understand that it has to weigh up how much time it has for such matters versus other things. That may well be a matter for the Treasury Committee to revisit. I urge it to ask for the ability to appoint all five members, not least because the two non-executive members who will not have a pre-appointment hearing are essentially appointed by the Chancellor of the Exchequer. To ensure their impartiality beyond doubt, it would seem necessary for the Treasury Committee to have the right, if it saw fit, to scrutinise all five.
John Mann
As a member of the Treasury Committee, I wholeheartedly back the principle that all five members should be scrutinised appropriately, not least because of the point that my hon. Friend the Member for Luton North (Kelvin Hopkins) made about ensuring that there is the maximum possible specialist input, including from the labour market, in the decision making. Let us scrutinise all five.
Chris Leslie
I look forward very much to those pre-appointment hearings and the reports of them. It is important to have people who understand the real economy. That is the gist of our amendments. We are worried about these matters.
Chris Leslie
If the hon. Gentleman will allow me, I will make a little progress, because I want to ensure that other Members have the chance to comment in this debate.
One reason we feel it necessary to put the concept of a growth mandate in the charter for budget responsibility is our anxiety that the current Chancellor of the Exchequer and Treasury are slightly blinkered when it comes to growth and employment. We know that in all probability, the Chancellor will announce tomorrow that the OBR is to downgrade the growth forecast. [Hon. Members: “No!”] Yes, my hon. Friends may be shocked at that piece of advance news, but apparently it says on the front page of the Financial Times today that the growth forecast for 2011 will be downgraded from 2.1% to 1.8%. The British Chambers of Commerce has also downgraded its 2011 gross domestic product forecast and is now expecting GDP growth of only 1.5%, down from a forecast of 1.9%. Other consensus forecasters are moving in the same direction.
Ian Murray (Edinburgh South) (Lab)
Will my hon. Friend explain to the House, and particularly to us new Members, whether the OBR has reduced its forecast at any other time in the past year?
Chris Leslie
It is a one-way journey, unfortunately. The OBR started with high expectations of growth soon after the general election, and at every stage at which it has made adjustments, the spiral of the economy’s growth prospects has descended.
Thomas Docherty (Dunfermline and West Fife) (Lab)
Like the Lib Dem poll rating.
Chris Leslie
Possibly, but in a more tragic and important way that affects real lives and real people. It does not really matter what happens to the Liberal Democrat poll rating, but growth falling behind and diminishing as unemployment rises is a really important issue in the real world.
Stewart Hosie
May I bring the hon. Gentleman back to the amendment for a second? I am sure he is not suggesting that the OBR should have any role in setting the fiscal mandate. I understand why he wants the consideration of growth to be part of its mandate, but the Treasury Committee stated that the OBR’s commentary function
“should be one of informing public debate through disseminating better understanding of fiscal policy and long-term economic trends, identifying possible risks”
and so on. Those long-term trends would inevitably include growth. Although none of us would want the OBR to comment on individual policy measures, even the Government’s response—I certainly do not defend them—states that the OBR would be
“examining and reporting on…the long-term impact of the Government’s decisions.”
Again, that would include their impact on growth. Does the OBR not already have the ability that he is looking to give it?
Chris Leslie
I suspect that the Economic Secretary will make that point in her retort, when she eloquently resists all amendments, as is her usual pattern of behaviour. However, it is not clear enough that growth and employment are matters that the OBR can comment on and analyse. I absolutely would not want to give it the power to determine the mandate, but the Treasury should be big enough and ugly enough to withstand commentary from such an independent body.
Mr Cash
May we park that matter for now, without in any way undermining the hon. Gentleman’s main point about judicial authority? What he said in the Public Bill Committee was completely right—if we impose a statutory duty, we have to accept that the courts will adjudicate.
That is important enough, but how would the hon. Gentleman reconcile clause 6(3), which states:
“The Office must, in the performance of its duty…act consistently with any guidance”
under the charter with, for example, European directives that will emerge under the 2020 strategy? Under his proposals, which would prevail?
Chris Leslie
The growth mandate that we are suggesting would be a responsibility of the Treasury, not of the OBR, but it would give the OBR a duty to have regard to whatever else was in the charter. Simply inserting the fact that the Treasury had to follow a growth mandate would give the OBR the right to comment on the Treasury’s performance in respect of that mandate. Whether there are European or other influences on the Treasury’s policies and performance is a debate for another time, I suspect.
Chris Leslie
I am quite sure that there are influences, but we tabled the amendment to draw out answers to some of these questions.
John Mann
One statistic that is not currently provided by the OBR is its projection of the number of new employees entering the country from abroad, including from within the EU. The amendment might mean that the OBR must provide that statistic, which is important in social and economic policy. At the moment, the OBR gives only a general figure from which we cannot deduce, without more detailed and hidden questioning, precisely how many new jobs come from abroad. My understanding is that currently, 700,000 to 800,000 of the new jobs being created will involve EU migrants. What does my hon. Friend say to that?
Chris Leslie
If the OBR is to do an adequate and holistic job in commenting on economic prospects, it surely needs the clear and explicit right to comment on employment policy, growth policy and so forth. My hon. Friend is absolutely right to raise the issue of employment and jobs. The most recent figures show that the jobseeker’s allowance claimant rate is 8% of the population, which is a 17-year high, and a prediction of 2.6 million unemployed. Again, that is likely to be revised upwards by the OBR when it comments on the forthcoming Budget.
My constituency, Nottingham East, symbolically passed the 10% claimant count rate, which is a very depressing milestone. For those reasons, and because long-term unemployment is increasing so quickly—it is up 24% in the last year—and more than one in five young people between the ages of 16 and 24 are out of work and on the dole, surely we need the charter for budget responsibility to include a growth mandate, and for the OBR to have the ability to assess the impact of the Treasury’s polices on jobs and growth.
Geraint Davies (Swansea West) (Lab/Co-op)
The Bill states:
“It is the duty of the Office to examine and report on the sustainability of the public finances.”
The sustainability of public finances involves three factors: tax, spend and growth. In tomorrow’s Budget, the Chancellor is expected to say, “This is a Budget for growth with very little change in tax and spend,” but it would be remarkable and ridiculous if two massive parts of the sustainability of public finances were not properly accommodated within the OBR.
Chris Leslie
My hon. Friend is absolutely right. It would be such a pity if this edifice—the OBR—did not scrutinise the things that the Government know they are vulnerable on, and on which their policies are deficient. The Government do not have a strategy for growth and jobs, and we need the OBR to be able to expose that. Growth has a number of drivers—
Chris Leslie
I will not, if my hon. Friend will allow me, because I want to focus on what the OBR needs to take account of.
The Economic Secretary to the Treasury (Justine Greening)
I have been listening to the hon. Gentleman for a while, but I want to draw his attention to the OBR’s economic and fiscal outlook, which was published in November last year. I do not know whether he has looked at that, because it contains 50 pages that consider the forecasting issues about which Opposition Members are raising concerns. I thought I would mention that because I get the impression from what he is saying that he has not read it.
Chris Leslie
Quite the contrary. Perhaps that was published in the free phase when the OBR, untrammelled by legislation and existing in the ether, as it currently does—we are post-hoc legislating now—had its moment of freedom when it could comment on such things. If the Bill locks the OBR into a narrow band of responsibilities and duties, it is reasonable to worry that it will be limited to commenting on a certain number of aspects. I accept absolutely that, as the Minister says, fiscal policy is affected by growth, and that therefore the OBR has an implicit right to comment, but that has not been made clear enough, which is a sign that she still does not understand the centrality of growth and employment policy to what the Treasury should be pursuing.
Kelvin Hopkins
My hon. Friend is right to focus on the importance of flexibility and the ability to deal with the problems he has described in his constituency. However, the hon. Member for Stone (Mr Cash) made a useful point about the EU’s arrangements, under which a completely independent central bank with no democratic controls sets interest rates that might or might not be appropriate for different nations. There are Maastricht rules and a rigid currency that cannot be flexed by countries that need to do so. Our situation is so much better because we have preserved a degree of flexibility so that we can manage our economy in the interests of our people.
Chris Leslie
Indeed, and we should pay tribute to the previous Prime Minister for maintaining and establishing those freedoms and that independence. However, you would rule me out of order, Mr Speaker, if we departed too much from the amendments.
A growth mandate is necessary on the four principal components of growth. The Government’s strategy on consumer spending is falling apart by the day. The nationwide consumer confidence index published this week showed a record low among the general public. One reason consumers are losing confidence is the possibility of VAT going to 20%. Real disposal incomes are falling back to the 2008 level, and median income is falling more than at any time since the 1980s. John Lewis reported falls in sales last week, Debenhams is saying that trading conditions are tough, credit levels are contracting, and from April onwards, of course, some of the tax credit changes and other changes will take money out of the pockets of consumers. We know therefore that on the consumer spending components of growth the Government have already lost control of a decent growth strategy.
On business investment, banks are still slow to lend to high-growth businesses. More than 20% of commercial real estate loans are in default or in breach of their covenants, and the much-trumpeted national insurance holiday that Ministers offered to new start-up businesses has not been taken up to the extent predicted by Ministers, owing to the complexities they have imposed on the arrangements. The Government’s growth strategy currently seems to depend on a number of odd assumptions, including that it is the fault of employee rights, which need to be eroded to boost growth. That is the kernel of their growth strategy.
On planning law, the Government are sometimes localist and sometimes not; sometimes they devolve powers but sometimes they do not want to give certain powers to councils. Their approach on planning is confused. Will they relax Sunday trading laws? There is speculation all over the place. There is even confusion over business rates. The Minister’s colleagues in HMRC have issued 40 different consultations, discussion documents, updates and responses on tax changes since the previous Budget, which, as many businesses complain, brings uncertainty and confusion. And to cap it all, with the abolition of the regional development agencies, they have created these local enterprise partnerships, with no clarity about their role or budget. We will see tomorrow about the enterprise zones, but on business investment the growth strategy is very deficient.
The Government are relying totally on an export-driven miracle to be the salvation of their growth strategy, yet if the Treasury predictions are correct we would need the highest export growth every year for the next three years, which last occurred in 1974, I think. That means, for example, that our exports to the USA would have to triple or our exports to China would have to grow twentyfold. That is not a growth strategy, but a prayer for a miracle.
To cap it all, we know what is happening with public sector expenditure. The rush to reduce the deficit so deep and so fast is causing great harm to the growth prospects of the economy and taking out a number of posts, particularly in parts of the country that are least resilient.
Amendment 3 would add to the Office for Budget Responsibility’s duties the requirement to assess the impact of Treasury policy on jobs and economic growth. Defining responsibility as such a purist, accountancy-type concept is to take a slightly dry and aloof approach, which seems to us irresponsible, given the real-world impact on people, jobs and society. We need to ensure that the OBR is a more rounded organisation that is grounded in the real economy, not just a narrow, bean-counting institution that looks at statistics or just one aspect of economic policy. It needs to be strategic, predictive, competent and authoritative, and it can do that only by having a duty to analyse the Treasury’s impact across the board. That would be one way of creating longer-term sustainability for the Office for Budget Responsibility, beyond the Government’s current plans for deficit reduction.
Amendment 4 would give the OBR a duty to assess the impact of growth in our regions and nations. We know that the Government’s spending cuts are hitting less prosperous parts of the country disproportionately. The disparities in our economy are growing as a result of the Government’s policies, and clearly that is harmful. Indeed, we saw that in the unemployment statistics this week, for example, with 27,000 more people made redundant in the west midlands and 8% unemployment in my region of the east midlands.
Stewart Hosie
We have indeed seen unemployment statistics, which show unemployment in Scotland falling for three months in a row, employment rising for three months in a row and construction up massively, specifically because of decisions taken by the Scottish Government to re-profile capital expenditure. How would the OBR relate, for example, to the Scottish Government on the different routes that they had taken over the same period? How would that technically work?
Chris Leslie
If the OBR could explicitly comment on employment and growth policy, it would be able to look at the different tactics employed in the economic policies of the different regions and nations. If there were good or poor policies in different corners of the country, the OBR would be able to analyse and pass comment on them.
Stewart Hosie
The hon. Gentleman is being generous in giving way, but I am quite keen to probe on this issue. What he has said makes perfect logical sense, but at that point the OBR would be commenting not on UK policy, but on regional or national policy. If it were commenting on a micro-policy, rather than policy at the UK level, would that not put it in difficult political territory?
Chris Leslie
If a policy were having a significantly adverse effect on jobs, such as some of the policies pursued by the current, Tory-led Government, it would be useful to have an independent, authoritative budget office to comment on that and to flag it up—to put out a red alert, as it were—as something that parliamentarians ought to comment on. I would not have a problem with that level of commentary. We should be big enough to cope with that level of challenge, audit and scrutiny. We would not be giving the OBR any power to make decisions; the point is simply to shine a spotlight on Treasury and Government policies.
Chris Leslie
If my hon. Friend will allow me, I will not give way. I have been speaking for rather a long time and I want to stop, but hon. Members may wish to make their own comments individually.
Clearly we need a proper growth strategy, but a growth mandate would also help. We need to start focusing on future growth industries and maximising our comparative advantage. We need to cast forward with a growth strategy not just for a decade, but for several decades. We need to focus on skills and, yes, a fiscal strategy, but we also need to focus on job creation, and a growth mandate with the clarity for the OBR to make its own assessments would certainly be a step in the right direction.
Mr Cash
Some time before the general election, as the financial crisis was developing—particularly in relation to the banks—there was a certain amount of talk about the idea being put forward by the then Opposition for an office for budget responsibility. I remember participating in some of those debates, and saying that I thought that it was an extremely good idea to have a much clearer picture of how we organised our finances. However, at that time the true level of debt was not being revealed by the then Government. We had reason to believe that the actual amount of debt was very different from what was being put forward. That had significant repercussions for the question of how we should deal with it. The OBR, or whatever else was going to be put in place, would have had to deal with the reality of the debt.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. The hon. Gentleman knows what I am going to say. I do not want to spoil what he is going to say on Third Reading, so it might be better if he stuck to the subject of the amendments. That would be more useful to us at this stage.
Mr Cash
I am very glad to be able to follow that advice. In order for the provisions contained in the amendments to be inserted in the Bill, it is essential for the House to be aware of the implications of judicial authority, the assertions of the Supreme Court in that context, and the sovereignty of Parliament. There is, for example, the question of fiscal policy and the charter, which is set out in clause 1(2) and to which the question of economic growth and job creation would be added by the amendments. Clause 6(3) states:
“The Office must, in the performance of its duty under section 4, act consistently with any guidance included in the Charter by virtue of this section.”
I am deeply worried about the legal status of the charter in this context.
As for fiscal policy, I remind the House that the other day, probably for the first time since 1640—Pym and Hampden and all that—the Government passed a motion saying that we were only primarily responsible for it. I voted against the motion—as did my hon. Friend the Member for Bury North (Mr Nuttall) and a number of others—but the whole House should have voted against it, because in fact we are exclusively responsible for fiscal policy, and that is what the Bill is supposed to be based on.
What worries me particularly is the inconsistency with fundamental questions that are in the background, involving the primacy of European law, sovereignty and judicial authority. I need make no further points, because in a nutshell, if those issues cannot be reconciled with what is in the Bill, and if the duties of the Office for Budget Responsibility are to examine and report on the sustainability of the public finances, to prepare “fiscal and economic forecasts”, to make assessments and analyse sustainability, and to act consistently with the charter as a matter of law, we are surely entitled to ask: which law will prevail?
Obviously, I agree with all the ideas that are being presented. We all want an efficient economy, we all want jobs and we all want growth. We cannot survive without growth, and we cannot generate the revenues to pay for the public sector without that growth in the private sector. What worries me is that all those ideas are being imposed through a Bill, rather than through the judgment of Ministers who are accountable to the House of Commons, and should not be required to refer back to the judicial authority of the courts or the alleged primacy of the European Union.
I fear that we are embarking on one of those Lewis Carroll-type situations. I am reminded of “The Hunting of the Snark”. Members may recall the phraseology. We know that we want it, we know it is there, but the question is, what is it going to do? I have a serious problem with the Bill for that reason. I fear that we are engaged in a process of wishful thinking rather than achievement, and that we are being locked into a withdrawal from parliamentary accountability—and, as some Members may know by now, I regard that as the ultimate test of our democratic system.
Ian Murray
It is a pleasure to follow the hon. Member for Stone (Mr Cash). At the end of his contribution he referred to wishful thinking. Labour Members certainly think the Chancellor’s gamble with the UK economy is wishful thinking. The recent reduction in GDP came as a shock to everyone, and serves to highlight some of the wishful thinking indulged in by those on the Treasury Bench.
I think that everyone supports the establishment of the Office for Budget Responsibility. One of the best measures taken by the Labour Government was the courageous step of making the Bank of England independent. We have all seen the benefits of that, in good times as well as bad, as it can now make decisions for the benefit of the economy, rather than the benefit of the Government.
In the establishment in law of the OBR, the Bill should focus on more than just deficit and debt issues. Clause 1(1) states that the Treasury must look at
“the formulation and implementation of fiscal policy and policy for the management of the National Debt.”
That narrow focus takes us away from what we need most, which is economic growth. It does not even give the OBR the ability to take account of various specific objectives the Government may want to achieve, such as on child poverty or unemployment, or in terms of the impact on the economy of decisions made by the Chancellor and his team.
Justine Greening
To reassure the hon. Gentleman, may I point out that the OBR is free to consider the impact of any Government policy on the sustainability of the public finances? It therefore does have the discretion to conduct analysis that it may think necessary to assess whether the public finances are in a sustainable state.
Ian Murray
I am grateful to the Economic Secretary. As I have said previously in the House, she is one of the more capable Ministers, but she does occasionally fail to see the wood for the trees, and I would point out to her that the OBR’s remit is purely fiscal, and its fiscal forecasting may not always take into account what is happening on the ground in all the local communities that we represent.
That brings me neatly to my next point, which is about independent forecasting. That is certainly no panacea, nor is it a substitute for the judgments made about the public finances by the Chancellor and Prime Minister. We need to be able to hold the Government to account on the accuracy of the forecasts and the consequences of the judgments and choices that they make. The Conservatives have repeatedly claimed that the Labour Government fiddled the figures, but that is not borne out by the statistics published by the Library. In all the years before the crash, in only two years did the growth forecasts fall below the range that the Treasury had published, so the Treasury was dealing with those issues. The Government are wrong if they believe that the OBR would have prevented a crisis, or that it will protect us from the consequences of some of what in my view are the Chancellor’s misjudgments.
Stephen Williams (Bristol West) (LD)
If the OBR is such a good idea, why did the previous Government not introduce it during their 13 years in office? But leaving that aside, will the hon. Gentleman concede that if we had had an office for Budget responsibility in the last Parliament, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) would have found it much harder to dismiss warnings about the economy overheating, because those would have come from an independent office such as that created by this Bill?
Ian Murray
I am grateful to my hon. Friend; I get on very well with the hon. Gentleman, so I consider him to be my hon. Friend—
Ian Murray
That may not please every Labour Member, but nobody is objecting to the setting up of the OBR. My point is about the previous Government’s record: in only two years did the growth forecast fall below the range that the Treasury had published. I am not claiming that the OBR does not do sterling work.
That last intervention brings me neatly to my point about what the OBR has been able to do. It serves as a strong antidote to the propaganda about the figures that we have been hearing from the Government. The OBR said that because of the actions of the Labour Government, the deficit in 2009-10 was more than £20 billion less than had been expected. It also said that under the Tory-led Government’s plans there would be 110,000 more people on the dole by the end of this Parliament than would have been the case under Labour’s plans. Those are the OBR’s figures, which is why I am so delighted that it was set up—the hon. Member for Bristol West (Stephen Williams) can check the figures if he wishes. The OBR forecasts based on Labour’s plans until the election were that the economy would grow by 2.6% in 2011, whereas the figure under this Government spirals down to 2.1%—and even that may be reduced when the Chancellor speaks at the Dispatch Box tomorrow. So the OBR has been a good antidote to the propaganda that we have heard from those on the Government Benches.
Andrew Bridgen (North West Leicestershire) (Con)
I welcome the fact that the OBR is in place. Does the hon. Gentleman think that if it had been formed back in 1997, it would have advised the Labour Government against increasing the national debt by a stonking £74.9 billion in the boom years between 1997 and 2004?
Ian Murray
One would have thought that the three interventions I have taken were scripted across the Chamber, because the hon. Gentleman leads me to the second point in this part of my speech. I was talking about the deficit and the national debt, so let us dispel some of the propaganda in the OBR’s reports. He is welcome to read both them and the fantastic summary of performance indicators in the economy that the Library has produced. This point shows why it is incredibly important that the OBR should examine a wider set of figures, rather than just fiscal and national debt. Public sector net debt was down to 36.5% of gross domestic product in 2007-08, compared with the 42.5% that was inherited in 1996-97. Most of that borrowing was to do with financing capital investment, and not day-to-day expenditure as the Conservatives claim.
Stewart Hosie
Unfortunately that is not quite true, because the bulk of the capital expenditure took place through the private finance initiative. If memory serves, the outstanding balance on the credit card for that is £200 billion—of which, under the Labour Government, two thirds was off the balance sheet.
Ian Murray
The figures are there for people to see. I am delighted that we have had a contribution from the hon. Member for Dundee East (Stewart Hosie) on this subject, because in the past four years of Scottish National party government not one brick has been laid to build new infrastructure in Scotland. They have refused even to set up anything to do with building public infrastructure.
Mr. Deputy Speaker (Mr Lindsay Hoyle)
Order. We are not going to be drawn into the party politics of Scotland. Let us stick to the amendment.
Ian Murray
Thank you, Mr Deputy Speaker. I will resist the temptation to have another go at the Scottish National party in the Chamber, and will take your guidance.
I shall finish on two quick points. First, the level of borrowing before the financial crisis did not cause the recession. Every country in the world was affected, so it does not take a rocket scientist to work out that it was a worldwide financial crisis. The coalition Government’s propaganda—
Ian Murray
I may just carry on, as I know you are trying to get through the speakers, Mr Deputy Speaker.
The coalition would have us believe that the previous Government were responsible for the economic crisis in, to name but a few countries, Germany, France, the US, Japan, Greece, Portugal, Spain, Italy, Iceland, and that member of the arc of prosperity, Ireland.
Finally, I want to give a human story and show why there is a need for a growth factor mandate at the OBR. On Sunday in my constituency I met a family who raised the spectre of what the Government’s changes mean for them and the problems that they face as a result. The OBR reflects these issues in the figures it produces, but not in terms of growth. That family gave me a list, which follows on from a list given to me by someone at Her Majesty’s Revenue and Customs: they have listed the cost of all the changes to their family budget, which amount to a loss of £4,000 a year. One member of the family earns just into the upper tax bracket, and his partner works part-time and tends to look after the children. When the national insurance increase and the child benefit cut—because he is a higher tax bracket earner—are taken into account as well as the increase in VAT and pension contributions, the overall consumer prices index increase to pensions, his public sector pay freeze, the extra cost of fuel going into the car, the increase in utility bills, food inflation and general inflation in the economy, it all has a rather hard-hitting effect on the family budget. That is why I think the amendments are sensible, and why the OBR needs a growth mandate to get the Chancellor out of a hole—because he does not have a plan B, and it does not really look as if he has a plan A, either.
John Mann
I shall speak solely to the excellent amendment that my hon. Friend the Member for Nottingham East (Chris Leslie) so eloquently put forward. In doing so, I shall argue why it is in the Government’s interests to accept the amendment. I am certain that by the end of my speech the Minister will wish to accept it and will accede by nodding that she will do so.
The amendment is a pro-Government amendment and would be pro-Government whoever was in government, because unlike the usual party-politicking that we tend to get on Report, particularly early on, the amendment is a highly pragmatic and practical amendment to a process that, as the Government stated when they set up the OBR, was itself meant to be independent, practical and pragmatic. The shame is that we could be in a Public Bill Committee given the paucity of the number of Members present to debate this rather important Bill and an area of the economy that is the most fundamental issue that we face, along with every other Parliament in the world. I know we will not have a green Budget tomorrow, but today the green Benches are largely empty of hon. Members ready to participate in and listen to the debate. That is an indictment of the confidence that Back Benchers from both halves of the coalition have in their Government's economic policies on the verge of the Chancellor’s second Budget.
We have an opportunity to shape the independent analysis that will sit alongside this and all future Budgets, including when, at some stage, the coalition parties are in opposition—although I appreciate that the Liberals are, in essence, already in opposition. It is extraordinary that so few of them are present. If I were a Liberal now—I never will be, but if I were—I would be thinking, “Here is an opportunity, with this amendment, to try to have a smidgen of influence over this tawdry Government.” That smidgen of influence is entirely lacking now, because the Liberals are nothing more than lapdogs to the Tories’ economic policies.
I shall illustrate my point with two examples, the first of which concerns the labour market and issues such as immigration and why it is so relevant to what the OBR is not doing and, I believe, will not do in its report that will be presented with the Budget tomorrow. When assessing job creation, it is essential from a Treasury and from a social policy point of view to ascertain precisely what new jobs there are. In doing so, work should not be broken down to the micro-level of particular kinds of jobs, as policy makers do not need to know that. However, they do need to know about the people who have entered the labour market and were not in it before. If it is projected that just over 1 million jobs will be created in this Parliament, it makes a world of difference if those jobs are taken by young people coming into our economy from the accession countries of eastern Europe, perhaps on a temporary basis, to participate in those elements of growth in our economy rather than being taken by the domestically resident, unemployed, underemployed, retired or partially retired population.
The economics of this issue are as important to decision making as the social policy side, which I am sure all hon. Members will recognise is very important. If the majority of jobs being created are semi-permanent, service sector-based jobs in the south-east, particularly in London, and if they are filled by people from overseas, there will be economic and social consequences. One economic consequence will be an overheating of the London and south-east economies.
The failure to take that into account in economic planning was by far the biggest fault line under the previous Labour Government. It is foolhardy of the current Government, with the cheering on the Conservative Back Benches that there has been, to do exactly the same thing given that a tool has been created that would allow that objective analysis—if it were allowed to do that job. If the OBR’s report tomorrow gives a breakdown of where jobs are coming from, how many are in the south-east and London, and how many are new jobs going to people coming into the country for the first time, that will give us far greater certainty about the economic and social consequences. Some of those economic consequences, as well as social consequences, will be an overheated housing market in London and the south-east, which has previously been an impediment to certain forms of growth and to those who have wished to get into the labour market but have not been able to do so.
Stewart Hosie
The hon. Gentleman makes an interesting point about the nature of employment, but I am not sure whether the growth mandate to which amendment 1 refers would help. There were years under Labour in which there was net growth, but the Labour Government still managed to lose 1 million manufacturing jobs in those years—this was before the recession—and I am not sure how the growth mandate would have helped to inform us that we had lost those jobs, given that net growth was being identified and, presumably, reported on, as it would be by the OBR.
John Mann
We, like other countries in the western world, are losing manufacturing jobs because of our refusal to deal with Chinese imports and the consumer myth of buying ever cheaper from China. The inherent trade imbalances and problems that accrue as a result will come back to haunt us, and while I know that the Government will want to allocate time to discuss that vital subject in the near future, it is slightly outside our present debate.
The hon. Gentleman is partly right and partly wrong. While it would be wrong to discuss policy issues relating to the economy now, if the statistics had been broken down at that time to allow his assessment to be made more accurately, it is rational to assume that the situation could have been debated more regularly and in a more informed way. That might have had a positive impact for Opposition Members such as him as well as Labour Back Benchers. Indeed, such information might also have informed the previous Government’s policy making, which explains why amendment 1 is in the Government’s favour.
We need to know about job creation and what jobs are available not only in London and the south-east, but in other parts of the United Kingdom. I have talked about immigration, but there is an equally vital factor for economic and social policy: the blurring, albeit for rational reasons, of retirement age. We have to consider early retirement, late retirement and the retirement age itself, as well as the vital question of pensions. Some employers in areas such as mine have deliberately targeted getting the over-60s back into employment. That is perfectly rational, and it is good for those people, for the social economy and, perhaps, for the economy overall. We need the information, however; not because that is a bad thing, but because we need to know whether the new jobs in our regions and constituencies are getting those people who are deemed to be retired into the labour market, as opposed to people who are not working—whether they want to work or not. If we are to crack the problem of those who choose not to work, or who are incapable of getting work—again, the rational employer goes for the person with work history—such understanding will be vital to our economic and social policy. I put it to hon. Members that the rational employer is far more likely to employ a 67-year-old with an excellent work history who is re-entering the labour market, perhaps in a part-time job, than a 57-year-old who has been unemployed for 10 years.
The decisions taken by employers and those individuals who wish to re-enter the labour market are not necessarily matters for us, but the consequences of their decisions are important to us, and especially to economic policy making. An understanding of the precise breakdown of new jobs and job losses is fundamental to economic policy making. Several of the economic assumptions that can be made about consumer behaviour, pensioners and wage demands flow from such analysis. That is why, as a slight aside, it would be foolhardy not to give the Treasury Committee a role in all five OBR appointments, because such a role would ensure that if a Chancellor were so foolish as to skew the appointment process towards people with a certain mindset or from a certain discipline in economics, as opposed to trying to achieve a balance, that Chancellor could be corrected through appropriate cross-party decision making. I am talking about any Chancellor—the present one, whoever replaces him in future reshuffles and our Chancellor, when we are in power. It is vital that there is an evidence base that stands independent of the Government so that we can all decide how to vote on the various measures that the Government bring forward. How can we possibly make an informed decision otherwise, except by political instinct, which is important but insufficient compared with having all the information?
I am therefore puzzled by why the Government are not leaping to thank my hon. Friend the Member for Nottingham East for tabling the amendment. Labour Members might see the fact that his approach would help out such a Tory Government as somewhat treacherous, but this is clearly the new politics. It is coalition gone mad when a Labour Front Bencher is putting forward a proposal that would help Conservative Back Benchers, the handful—a tiny number—of Liberals who are anywhere near government and the Government themselves.
Let me give another example about policy making. Who knows what will be determined about petrol policy tomorrow, but that is a good example of something that should be covered by the OBR’s analysis. We need to know what has happened, including in the past, so that we can assess the impact of VAT on petrol, as well as on petrol duty, and the changes to petrol duty itself. The Chancellor might decide not to cut the price of petrol and yet not to increase it further, even though the price paid by drivers such as myself has gone up by ten quid since he became Chancellor. If he decides not to increase the price further, we will need to see a breakdown of the relevant information. We could go back through history, although I can guarantee that such a consideration will not be in the report that the OBR produces tomorrow. I could assist the office, however, because I have statistics that demonstrate that 70% of the existing tax on petrol was brought in by Conservative Chancellors since 1973. One might ask why Conservative Chancellors pick on the motorist to such an extent, but that is a debate for tomorrow rather than today, although I know that you, Mr Deputy Speaker, and others in the rural community will want to know why that is the case.
The point, in the context of the amendment, is that we must know precisely what is going on. I imagine that Conservative Back Benchers would be shocked to find out that Conservative Chancellors are responsible, as of today, for 70% of the tax on petrol. If the OBR had the mandate, however, those statistics could be laid out for us at every Budget and the pressure would be on. The pressure would, of course, be on Labour if the reverse had been the case and Labour Chancellors such as my right hon. Friends the Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling) had been responsible for the rise.
Andrew Bridgen
I applaud the hon. Gentleman’s honesty in saying that Conservative Chancellors are responsible, because there is no doubt that Labour Chancellors have been extremely irresponsible. [Interruption.]
John Mann
I struggle with the humour, Mr Deputy Speaker.
The facts cannot be hidden. The facts about immigration cannot be hidden because they can be rooted out. My point is that the facts should be there and they should be presented. The facts on the semi-retired, part-retired, would-be-retired, past-retired and those back in the labour market are not there, but they would help with some of our social policy making and, I repeat, are vital to our economic policy making.
When it comes to the price of petrol and the level of tax on it, I imagine that some Greens and others—there are not many Green Members, of course—would see those statistics as important for social policy. As I have said, however, I am mainly interested in economic policy. I am interested in knowing about the impact in my area on small businesses as well as the larger businesses that rely on vehicles. I used to rely on vehicles when I had my own small family business, driving lorries across Europe. We know how much it costs to fill up, but as a new MP entering Parliament in 2001, I would have been interested in challenging Labour Chancellors over what they were going to do with the historic tax on fuel that had been imposed by their Conservative predecessors, particularly between 1979 when it was 6.6p and 1997 when it was about 45p—the biggest increase in petrol duty anywhere in the world. I appreciate that statistics can be embarrassing to Governments.
Stephen Williams
The hon. Gentleman objects to taxes on fuel—we hear a lot from many Labour Members about their objections to different tax rises by this and previous Governments—so where does he think that the tax burden should fall, given that billions of pounds are raised by fuel duties?
John Mann
I will have to resist—not because I am not keen to respond, but because I see immediately that Mr Deputy Speaker does not want me to stray into taxation policy. This is about the statistics, and the statistics are fascinating when we know that Labour Chancellors have put up petrol duty so little in comparison with Conservative Chancellors. We know why: it is because we are on the side of industry and of business. We have not said that enough; we have not been proud enough to say it, and we need to say it far more.
When it comes to economic decision making and the ability to have comparators, the statistics are vital. That is why I emphasise that, in essence, amendment 1 is a pro-Government amendment. I predict that, at tomorrow’s Budget, the Office for Budget Responsibility will not provide such analysis. It is wrong that it will fail to do so, but its excuse will be that it does not have a mandate. We have an opportunity to put that right. I look to the Minister to nod to show that she is going to accept this excellent amendment in order to strengthen decision making and to be on the side of the motorist and those who want a proper debate on the labour market and jobs in this country. I commend the amendment to the House.
Geraint Davies
The amendment is essentially about making growth a centrepiece of the Office for Budget Responsibility—for very obvious reasons. The OBR’s remit, as set out in clause 4, is to
“report on the sustainability of the public finances”.
That sustainability consists of tax, expenditure and growth. We are not saying that the OBR makes no implicit consideration of growth, but that growth needs to be made a much more central part of the information available for our deliberations.
Justine Greening
Clause 5(1) states:
“The Office has complete discretion in the performance of its duty under section 4”.
Does the hon. Gentleman think that that is somehow insufficient to provide the OBR with the absolute discretion it needs to do any analysis it wants to fulfil the main duty he mentioned?
Geraint Davies
Having complete discretion is useful, but the word discretion means that something remains a matter of discretion—these things do not have to be done. The OBR has the discretion to go around looking at whatever it likes, but the amendment is saying something different—that the centrepiece of our economic future is economic growth. That has belatedly been recognised by the Chancellor, as we will see in tomorrow’s Budget, when he will say, “I have done all the tax and spend, but, oh no, everything is going wrong because growth is going down the chute, so I had better belatedly do something about it.” The previous Government had sent us on a trajectory of positive growth, albeit that it was a fragile recovery after a financial crisis. The Chancellor has seen that we are going into negativity, so he has scratched his head and realised that growth has something to do with the public finances.
We have been lambasted by Conservative Members who say that the deficit is terrible and Labour left the cupboard bare. They conveniently forget that, as reported by all the economic forecasters, including the Institute for Fiscal Studies, two thirds of the £84 billion deficit came from the international financial crisis. That was not Labour’s fault. When Conservative Members suggest, “Oh, well, we should have had more regulation”, they seem to forget that when we created the Financial Services Authority to introduce more regulation, they said they wanted self-regulation and complained about red tape. In fact, it would have been much worse had it not been for the Labour Government. Furthermore, that regulatory hole in the armoury was commonplace across the globe. That is why Governments in Greece, America, Spain and elsewhere have had problems dealing with the financial deficits they inherited. Obviously, we were more vulnerable to sub-prime debt, as we know because the financial sector is larger in Britain.
Let us get away from the myths about why we have the deficit and deal with the challenge of how to get rid of it. We get rid of it by striking a proper balance between growth, making savings over time and ensuring that the bankers pay their fair share. It is convenient for the Conservatives to say that there is only one way of achieving the task. Instead of having a balanced approach to maximising growth, making the bankers pay their fair share and making credible savings that are realistic over time and would halve the deficit in four years, Conservative Members say, “No. We don’t want to halve the deficit in four years; we want to get rid of it in four years, and we do not want to use growth or involve the bankers. The bankers are our mates after all, so they can have some more money. What we will do is make the cuts twice as fast in just one way—through savaging public sector jobs and services.”
Then, remarkably, growth starts to recede so that the sums no longer add up, as there is obviously an interrelationship between private sector growth and public sector funding. Thus they suddenly realise that they have to do something about growth. The amendment is about recognising that the centrepiece of macro-economic planning and fiscal responsibility is growth. It is all very well for the Minister to say, “Oh well, the OBR will have absolute discretion; it can look at growth if it likes, but if it doesn’t want to, it doesn’t have to.” That is the problem; its eye is off the ball. We need to get the finances in proper balance without destroying communities, which is what Labour Members stand for.
Stewart Hosie
If I may take the hon. Gentleman back, he mentioned Greece and banking regulation. Can he explain to the House how the failure of Greek banking regulation had anything to do with the sovereign debt crisis, and what on earth the amendment, which is about a growth mandate, has to do with that?
Geraint Davies
I will try and speak more slowly. My point was that the international financial crisis affected all countries’ debt, not least that of Greece. Obviously, it has its own banking system, underneath the European Central Bank. There was a common cause for many of the deficit problems around the globe. It was not uniquely Labour’s fault, as the Government make out. The amendment seeks to clarify the factors that are generating the fiscal future, including growth.
Justine Greening
The hon. Gentleman keeps talking about the deficit as though it was something that descended upon us. The bottom line is that the UK had a structural deficit. That means that his Government were spending more money on public services than was being generated in taxation, even in the good years, so we were never going to be in a position to start paying off any of our debts, which is why the markets got so concerned about continuing to lend to us. That is a structural deficit, and it is a fact, even if the shadow Chancellor will not accept it, and that is why we have to have a deficit reduction plan in place.
Mr Deputy Speaker (Mr Nigel Evans)
Order. This is a fascinating debate, but not for today. If we could get back to the specifics of the amendments before us, perhaps we could make some progress.
Geraint Davies
I am grateful for your advice, Mr Deputy Speaker, and for the Minister’s intervention. In a way, her intervention makes the case for having growth at the centre of the OBR. I am sure that when she reads her words, which I appreciate were spoken with some emotion and anger, she will wish that she had picked them more carefully.
When we look at the facts and strip out the impact of the international financial crisis, which is about £84 billion in terms of our structural deficit, there was a residual deficit, to which the hon. Lady refers. There was an excess of expenditure over income, but that was taken into account in future planning. There was a savings plan from the previous Chancellor, as she knows, to cut the deficit in half in four years. That was not exclusively reliant on cutting public services and jobs. Rather, it relied on stimulating growth.
The OBR’s estimates of growth have been downgraded. Those higher levels—2.6%—would have provided more fuel to get the deficit down. I recall that the projected deficit in the pre-Budget report was £30 billion less than had been predicted previously. In other words, growth had been occurring faster than was thought. Now it is growing less fast—in fact, it is growing negatively.
Justine Greening
Just on the off-chance, I wonder whether the hon. Gentleman would be able to set out what the £14 billion of cuts were that his party was planning to start in April.
Mr Deputy Speaker (Mr Nigel Evans)
Order. We are going much wider than the amendments. Could we please confine our comments from now on to the amendments before us?
Geraint Davies
The point I was making before I was distracted was why there should be growth in the OBR. What were the previous Government’s plans to get the deficit down? That is what the hon. Lady asked. It is important to recognise that the plans that we had were largely growth plans, which will now not be taken up. I shall give one simple example.
The Government said, “We’ll cut some expenditure. We’ll cut the regional development agencies.” So there I was, going to speak to UK Trade and Industry which, as Members know, is the marketing operation for Britain abroad, about encouraging inward investment and trade with foreign countries. I was talking to UKTI in Germany, as it happens—
Geraint Davies
No, in Welsh. I was in Dusseldorf, talking on behalf of the Welsh Affairs Committee. This is relevant, Mr Deputy Speaker. UKTI had been marketing Britain, and various German companies had been saying, for example, “We want to invest in a food and drinks factory. We want these skills and this site, and ideally these grants and these communications.” That would have been put on a computer platform and pulled down by regional development agencies to encourage inward investment. I asked what was happening now, and was told, “All these bids are coming forward for creating jobs in the UK, and the RDAs are not pulling them down because they have been abolished.”
That is a simple example of how the cuts in administration and red tape are stopping quality jobs being created in Britain. The cuts undermine growth and are false economics. To answer the question about where we would cut the deficit, Labour would reduce the deficit by encouraging growth and jobs. I was talking to a business man last week in Swansea. He said, “I run a business. Why are the Government always talking about cuts? If I was making a loss and wanted to cut my costs, I would not sell my tools. Yes, I’d keep my costs down, but I’d invest in sales.” The Government’s position is like paying off the mortgage by selling the furniture, rather than getting a job. That is ludicrous.
That is why growth as the centrepiece of the Office for Budget Responsibility is so important. To release the entrepreneurial spirit and focus it on export-driven growth is the primary aim of Labour, but not of Government Members, who have let down business.
Stewart Hosie
I am trying to understand the amendment. To have a growth mandate in the OBR would have allowed it to explain precisely where the £57 billion of cuts every year under Labour from 2013-14 onwards would have come from. Is that correct? The growth mandate would have explained where the £57 billion of fiscal consolidation would have come from. Is that correct?
Chris Ruane
No. The hon. Member for Dundee East (Stewart Hosie) is listening too slowly.
Geraint Davies
There was never any suggestion that the OBR could miraculously conjure up the optimum strategy, which has not even been launched by the Opposition, to solve the deficit problem more effectively. The Government are struggling with a one-string bow. They said, “We’ll get the deficit down by sacking everyone quickly,” forgetting that that would grind growth into the ground. We need to evaluate the changes in policy and particularly cuts in growth-creating capacity.
The problem might not be RDAs. It might be that we are undermining the capacity of our universities to ensure that the most able students are not deterred from going and that they become future growth generators and entrepreneurs. It might be the failure to provide connectivity between industry and universities to ensure that good ideas are commercialised and that there are opportunities for clusters of SMEs around universities. There are lots of ideas that can be calibrated for their impact on the public accounts. This move is an attempt to refocus all our minds on the importance of engines for growth, instead of cutting the legs away from the players.
Stephen Williams
Given that the hon. Gentleman wants growth-led manufacturing and university clusters, does he welcome the announcement made last week by the Business Secretary and the Deputy Prime Minister of technology and innovation centres around the country, including the composites centre in Bristol?
Mr Deputy Speaker (Mr Nigel Evans)
Order. We seem to be skiing off-piste every time there is an intervention and trying to tempt Mr Davies on to territory that is not relevant to the amendment.
Geraint Davies
I am grateful for your guidance, Mr Deputy Speaker, because I would not want to be tempted in the least. I will resist temptation.
The focus of the amendment is very much on the important area of growth. As I have mentioned, the important opportunity is to refocus our entrepreneurial activity on export-driven growth. For example, in the Budget tomorrow the Chancellor might announce tax breaks for investment in small and medium-sized enterprises, which I would welcome. I do not think that he will, because he does not particularly care about SMEs; he will just say something about not giving mothers and fathers rights to see their children. The fact is that, with regard to the engines of growth, the liquidity has been taken out by the banks, which are just rebalancing their balance sheets. They should be pressurised into providing the fuel to allow the entrepreneurial engine to move forward, because so many companies have full balance sheets but no cash flow because the banks are letting them down.
It would also be a good idea to have a tax break for investment in SMEs in order to push things forward, as that way people could put in their own money and it would produce a better rate of return from the point of view of the business and venture capitalists. I do not think for one moment that the Chancellor will announce such a tax break—he does not have the imagination—but if he did, that could be factored into the growth figures for the OBR, because obviously the money we would spend on the tax break would be recovered from business growth, particularly if it was targeted at export-driven, high-quality manufacturing.
Andrew Bridgen
Does the hon. Gentleman believe that the OBR, had it existed before the financial crisis, would have been able to tell the previous Government that much of the growth they were claiming was actually a mirage? That growth was driven by a Government who were spending more than they were gaining in taxes and so creating a deficit. To pick up on a point made by the hon. Member for Bassetlaw (John Mann), they were also exporting manufacturing jobs to the far east and importing cheap goods, which was having a deflationary effect on our economy, allowing interest rates to be kept artificially low and feeding a housing bubble that was getting ever bigger. When it burst, that was when it all happened.
Geraint Davies
I am glad that the hon. Gentleman is wearing a badge saying that he has a GCSE in economics, but I doubt it.
On a serious point, I have already accepted that prior to the financial crisis there was a marginal deficit to be confronted, and it was going to be confronted through growth initiatives. We have since had the financial crisis, and the important thing now is to move forward with ideas for investing in growth. Clearly, there are big questions on tax and spend and where those will be deployed. Many new ideas might emerge in the Budget, such as a windfall tax on the energy giants, whose profit margins have suddenly increased by 38% because they did not adjust their prices when costs changed and so ripped off Britain’s consumers. That is obviously a legacy of the previous Conservative Government’s privatisation and the lack of controls.
There is money available to invest in growth and services and to close the deficit gap. The point about the amendment is that we must put growth centre stage, as that will enable us to move forward in a balanced way, rather than in the narrowly defined way that the Government prescribe. With those thoughts, I will give other Members the chance to make their own unique contributions.
Chris Evans (Islwyn) (Lab/Co-op)
After the epic speeches from my hon. Friends the Members for Bassetlaw (John Mann), for Swansea West (Geraint Davies) and for Edinburgh South (Ian Murray), I will keep my comments succinct and tight, and I will try to keep to the amendment.
The most important thing about the amendment is that growth is key and that there must be some plan for growth. It is all very well saying, as many Members have, that there is no plan B, but it seems to me that there is no plan A. There is no rationale for a plan A or a plan B. It is important to know what that rationale will be. We need to know how the Government reach their decisions.
I am going to say something quite shocking: I do not believe that the majority of people in this country care about the deficit. Government Members can call me a deficit denier all they want, but I believe that when people are sitting around their kitchen tables at night they are most concerned about their jobs, their borrowing, their mortgages and their houses. That is what keeps them awake at night, not the deficit. Yes, the deficit is important.
Mr Marcus Jones (Nuneaton) (Con)
Does the hon. Gentleman think that people such as me who are parents of young children do not worry about the deficit and the legacy that the Labour Government left their children and mine?
Chris Evans
If I was in the hon. Gentleman’s position, I would be more worried about whether I will have a job in four or five years’ time. That is what most people are concerned about, but they are concerned about what will happen in six month’s time—
Mr Deputy Speaker (Mr Nigel Evans)
Order. I will tell Members what I am concerned about: no one is talking to the specific amendments before us. If it is at all possible for you, Mr Evans, to mention the amendments now and again, that really would be very useful.
Chris Evans
Thank you for your advice, Mr Deputy Speaker—I have not been here very long.
Getting back to the amendment, it is important that we have the rationale for growth and know how the Government reach their decisions. We cannot talk about this in the microcosm of a dry subject of forecasts. We cannot debate forecasts in this House; we can only debate judgments on how the Government arrive at those policies.
Geraint Davies
The hon. Member for Nuneaton (Mr Jones) mentioned his children. Surely the important point about growth and the amendment is that if we invest in his children, in their education and in the opportunity to go cost-effectively to university, to add value and to promote future growth, that is the future they can look forward to. That is why his children are probably a bit disappointed that he supported the increase in tuition fees. Let us have growth.
Chris Evans
I totally agree. If I may digress a little from the amendment, it is all very well paying off the deficit, but if there is no economy at the end of it we can forget about it all and worry about all our futures. I have tried to keep my comments brief and say in closing that I support the amendment because we need to know how the Government arrive at their decisions so that this House can properly scrutinise them.
Justine Greening
I am pleased to have the opportunity finally to respond to some of the points that have been made and to the amendments that have been tabled. It is important to say first that I very much welcome the contribution that Members not only in this House but in the other place have made to get the Bill to its current stage. Despite the debate we have had on growth, which of course is important, I think that there is broad support across the Chamber, as there was in the other place, for what the OBR is intended to do and for setting up such an office that can work effectively.
All the amendments relate to growth, so perhaps we have stared the debate that will no doubt continue tomorrow after the Budget. We believe that economic growth and job creation are absolutely vital, and Members will see tomorrow that that is a core part of the Budget. I agree with many of the comments that have been made about why we need to see growth as part of the Budget. I want to take the time to clarify some points that have been raised.
The debate so far has been about policy and strategy, but the OBR is not a policy-making body; it is there is look at the forecasting and produce the official forecast for the UK Government. It is precisely not intended to make policy. One of the things we have been very careful to do in setting out how the clauses and the charter work is ensure that the OBR’s independence, impartiality and transparency, which are also vital, are not compromised.
Geraint Davies
Having said that, will the hon. Lady accept that some of the OBR’s responsibility should be to forecast what it regards as the impact of policy changes from the Chancellor? For example, if he was to announce suddenly that he will let the private sector deliver public services so that entrepreneurial capacity will be taken out of export-driven growth and put into making easy money out of monopoly-provided public services, would it not be right for the OBR to say, “Hold on, that capacity has gone over there so our growth will go down”?
Justine Greening
I hope I can provide some clarification. The OBR has the freedom to consider the impact of policies on sustainable public finances, including employment policies. If the hon. Gentleman looks at some of the forecasts the OBR has already made, he will see forecasts for employment, average earnings, ILO unemployment, the percentage of the claimant count and, of course, growth. Hon. Members talked about the OBR’s assessment of growth and what it will show over the coming years. The OBR is already producing an awful lot of the analysis that hon. Members want to see, but it is fair to say that today’s debate will—I hope—be of interest to the OBR in understanding what information and analysis it might feel it needs to provide to convey what it wants to, which is some assessment of the economic growth forecast for this country.
Let us be clear that the duty of the OBR is very clear and is set out in clause 4. It should examine and report on the sustainability of public finances but, as hon. Members have said, Government policy clearly impacts on that. By definition, the OBR will consider how policy impacts on the sustainability of public finances.
John Mann
From what the Minister is saying, I presume that if the OBR—or even the Treasury Committee, but the OBR in particular—were to say that it was unable to provide the analysis that it would like to because it was not sufficiently resourced, that would be seen as a serious question for the Government to address.
Justine Greening
The hon. Gentleman will be aware through his role as a member of the Treasury Committee that when the chair of the OBR, Robert Chote, was asked whether he felt it was sufficiently resourced he said he felt it was. The hon. Gentleman will also be aware that one reason we have carved out sufficient money not just for this year but for the whole spending review period, which will be reported on separately, is to ensure that the OBR understands that it is sufficiently resourced not just for this year but for the years ahead, so that it has that certainty about its resource base to do the work it needs to do.
John Mann
That is a vital point, because Robert Chote was speaking as the first permanent employee. Others are now employed by the OBR who might have different perspectives and priorities. There is a critical question: if the OBR feels restrained by resources, will that become a politically contentious issue as regards objective statistics? Presumably, in such a case, if the OBR was kicking up about being unable to provide the detail in independent statistics, the Government would regard it as vital to address that resource need.
Justine Greening
I can go back to the reply I just gave the hon. Gentleman. The charter and the Bill clearly set out the OBR’s duties and Sir Alan Budd, as the interim chair, produced his report and talked about what he thought that the duties of the OBR should be, about its resourcing and about how it should be run. Of course, we reflected many of those comments as we introduced this Bill to set up the OBR. If we take that together with the fact that the permanent chair, Robert Chote, has said that he does not feel that there will be an issue with resourcing, we can be relatively confident that the OBR will be adequately resourced to fulfil the duties clearly set out in the Bill.
Let me turn briefly to the amendments. They all concern growth and the problem is that they start to stray into the OBR’s becoming bound up in policy rather than analysis. Amendment 1 would require the charter to include the Government’s economic policy objectives and the means by which that objective would be attained—what has been called a growth mandate. The charter, however, is a fiscal policy document that transparently sets out the fiscal policy framework. The purpose of the charter, the OBR and the Bill is to create the fiscal policy framework that supports the Government’s delivery of our fiscal policy objectives. Rightly, the charter focuses on fiscal policy issues, as was the case with the previous Government’s code for fiscal stability.
Geraint Davies
In conversation with the Institute for Fiscal Studies, I asked various questions about growth and its calculations and it was pointed out to me that the IFS was in essence made up of micro-economists who were aggregating up to deliver predictions about Government fiscal outputs. I respect what the hon. Lady is saying, but it seems to me that she is basically saying that the OBR will be doing something very similar. It is very easy to make such predictions if we say, “Assuming that everybody is still employed, that we have taxed them this and that they spend that, this will happen.” What is more difficult is to model the impact of individual policies in a Budget on growth and hence on the public finances. The hon. Lady is giving us some reassurances, but I think the point of our amendment was to push her to say that this would become a priority for the OBR so that we could have a richer understanding of the growth scenarios in the future. I appreciate that some of that is done, but we want more.
Justine Greening
Ultimately, a key clause—I think clause 5—sets out that it is at the OBR’s discretion to decide how to carry out its duty. A fundamental building block of the OBR’s credibility is its independence. I assure the hon. Gentleman that the risks he mentions, such as the concern that the OBR might not carry out robust analysis, are mitigated by other safeguards in the Bill. For example, one duty of the OBR will be to produce a report on the accuracy and robustness of its forecasting. As he will be aware, there are also non-executive directors who will be there on a day-to-day basis to challenge how effectively the OBR works and every five years, at a minimum, there will have to be a completely external peer review of the OBR’s workings.
I think we have managed to strike a balance by setting up the OBR in the way I have described—on the one hand by giving it independence, so it has that key element of credibility, and on the other by including some safeguards, in terms of its structure, its management and the review, so that, if for some reason it does not produce the quality of forecast that we need, those safeguards will be in place to ensure that we tackle the issue. Let us not forget that the OBR is accountable not just to Parliament, but to the Chancellor, because it produces the official forecasts.
Finally, amendment 4 suggests another new related role for the OBR, which as we have heard would be to assess the Government’s growth mandate. As I said in response to amendment 1, the Government seek to achieve their economic policy objectives through a range of policy tools and frameworks, not just through fiscal policy, but the OBR has been established to increase the credibility of the Government’s economic and fiscal forecasts and to hold the Government to account for their economic and fiscal policies.
That highly valuable role is recognised by a wide range of domestic and international commentators. The hon. Member for Swansea West mentioned the Institute for Fiscal Studies, and it warmly welcomed the establishment of the OBR, which, through its role, has already provided forecasts of key economic variables. In its November report, the OBR set out forecasts for the next five years, covering a range of key macro-economic variables, such as GDP and its forecast growth, inflation, employment, average earnings, unemployment and the output gap. In addition, the OBR will have the freedom to consider the impact of Government policy on economic growth and employment within our regions and nations, and in line with its main duty. I therefore consider all the amendments to be unnecessary, and I hope I have addressed the issues that hon. Members have raised.
Mr Cash
I do not want to put my hon. Friend on the spot, but I am troubled by a motion that the Government tabled in relation to a European document. I have an idea that they did not really mean to do so, but I just want to make the situation completely clear. The motion said that the Government and the House of Commons were only primarily responsible for fiscal matters and direct taxation. Will the Minister be kind enough to get that out of the way, so that we might now know that they are exclusively and solely, not merely primarily, responsible?
Justine Greening
I do remember the motion to which my hon. Friend refers. We were trying to be very clear, as he will be aware, and no doubt deeply unhappy, that some aspects of our fiscal and taxation system—for example, VAT—are set in relation to a broader pan-European directive. As we have discovered, that is one reason why the Opposition’s policy on reducing VAT on fuel alone is simply illegal, and I hope I can reassure him that we were trying to be very clear that it is primarily the UK Parliament that takes those decisions.
Perhaps I can reassure the rest of the House that growth is already an integral part of this Government’s approach to turning around our country’s public finances and economic fortunes. I understand why the amendments have been tabled, but they are unnecessary.
Chris Leslie
I am grateful to the Minister for her generosity in at least admitting that our debate and amendments will be of interest to the Office for Budget Responsibility. Indeed, I hope that is the case. We have tried our best on many occasions, and my hon. Friends the Members for Bassetlaw (John Mann), for Swansea West (Geraint Davies), for Edinburgh South (Ian Murray) and for Islwyn (Chris Evans) in particular have in plain terms tried to impress upon the Treasury Minister our anxiety that the Chancellor, in his blinkered obsession with hasty deficit reduction, risks harming the wider society and economy, particularly when it comes to jobs and economic growth. We have said that on several occasions, and it was important to reiterate the point today.
I understand, however, that the Minister has explained that the implied terms of the Bill do, indeed, allow for the OBR to focus on economic growth and employment matters. The Opposition hope that the OBR, at least, will do so, even if there is a deficiency in the Government’s strategy on the matter. We will no doubt debate those questions more, in terms of substantive policies, over the coming days.
The Opposition feel that fiscal policy cannot be looked at in isolation from economic growth, because the two are inextricably linked, and we will continue to make that point, even if Ministers seek to separate them. For the time being, however, I do not feel it appropriate to push the amendment to a vote, so I am happy to withdraw it. I think the Minister has heard the point. My hon. Friend the Member for Bassetlaw has accused me of tabling pro-Government amendments, and for that reason alone I should take them off the Table, given that we have other matters that the House will want to consider on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2
Annual Budget documents
Chris Leslie
I beg to move amendment 2, page 2, line 14, at end add—
‘(5) The Treasury must place in the House of Commons Library the costing methods and assumptions underpinning all revenue implications and projections of each Budget announcement.’.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to discuss amendment 6, in clause 8, page 3, line 29, at end insert ‘subsequently’.
May I remind the House that by contrast with the amendments in the previous group, which were very narrow, these amendments are very, very, very narrow? I do not want Members to consider that a challenge to see how long they can make a speech on the amendments. May I also remind the House that we have several days ahead of us when we will be able to talk about the economy, growth, jobs, taxation—and they start tomorrow?
Chris Leslie
It is early, Mr Deputy Speaker, but I understand your point about the ticking clock.
Amendment 2 seeks to require the Treasury to place in the Library the costing methods, models and assumptions that underpin all the revenue projections, implications, yield estimates and so forth from each Budget announcement. Hon. Members will know that the Red Book produced at each Budget contains a number of costing projections, and there is always a fantastic table somewhere towards the end of the document which gives a sense of the revenue gains or losses, depending on each tax or public spending measure in the Budget.
In Committee, it became clear that the Office for Budget Responsibility will have the right to gain some insight into the detailed methodologies that the Treasury uses to underpin the assumptions and costings. The methodologies are therefore publishable, because they can be transferred to the OBR, and all that amendment 2 seeks to do is to share them with the wider world, and in particular with Parliament, because if hon. Members are to scrutinise effectively the assumptions on which the Chancellor makes various decisions, the methodologies and costings used to underpin those calculations should be transparent.
In order to support full and proper scrutiny, and to ensure that we can debate those Budget decisions effectively, we think it a reasonable request that the Treasury should place those costings and methodologies in the Library. It would be inconsistent, given the Prime Minister’s protestations about
“a new generation that understands and believes in openness, transparency, accountability”,
for those models not to be in the public domain. We should not have to rely on freedom of information requests to elicit such information from the Treasury; if the OBR has it, so should Parliament. The amendment is very simple, and we should not simply have to have faith to trust the Chancellor’s judgments. If we are to have such transparency, we should all be able to see right through to the methodologies, and perhaps to challenge and test them.
Amendment 6, on a different matter, seeks to ensure that the OBR, when it does publish its reports, gives those changes to Parliament first. If hon. Members look in the Bill, they will see a simple clause that states:
“The Office must—
publish the report,
lay it before Parliament, and
send a copy of it”—
I am not sure whether it is to be sent first class—
“to the Treasury.”
All our amendment seeks to do is to place the word “subsequently” after the words “Parliament, and”. In other words, Parliament should have those reports first and the Treasury should get them subsequently—although I do not particularly mind if it gets them at the same time.
Stewart Hosie
Amendment 2 calls for the OBR’s reports to be published. The Treasury Committee said:
“The OBR should have discretion in the models it uses in drawing up its forecasts. It is a matter for the organisation itself as to whether it is content to use is the Treasury models, or wishes to make changes. Whatever course the OBR takes, there would be benefits in it being as transparent as possible about the models it uses.”
I assume that that would also include the assumptions that underpin those models. The Government’s response was positive. They said that they would
“provide the OBR with full access to Treasury and other forecasting models, as well as support to scrutinise and develop these models.”
Again, I assume that that means the assumptions that underpin the Treasury models and whatever other modelling it wishes to undertake. The hon. Member for Nottingham East (Chris Leslie) said that the OBR could take those models and assumptions from the Treasury, and he is absolutely right about that.
The OBR currently publishes a number of assumptions. For example, the impact multipliers were included in the June 2010 report, showing the one-for-one impact of capital expenditure cuts. Reports at the time of the Labour Government published assumptions about oil prices, and North sea corporation tax and petroleum revenue tax was used to calculate those yields. Given that several such assumptions are already published, and that the OBR can take all those assumptions, models and changes and create new ones, does it have the discretion to publish what it sees fit? Would it not be better to have a guarantee from the Minister that it will not unnecessarily withhold assumptions where it is important for us all to have transparency? Instead of the Treasury putting the material in the Library, we should ensure that the OBR has the ability to do that, so that we have the information and can come to a proper, reasoned view on whether we believe its figures.
That is a simple question, and I am sure that the answer is yes; I certainly hope so. There is no reason why we should not have that transparency so that we can all guarantee the efficacy of the reports that the OBR produces.
Justine Greening
On amendment 2, the Government are committed to increasing transparency in public life. That transparency is essential to good fiscal policy, as the hon. Member for Dundee East (Stewart Hosie) said. In fact, the Government already provide the costing methods and assumptions for policy proposals. Those were made available in policy costings documents at the last Budget and spending review, and copies were made available to the House. That is a step change in transparency in fiscal policy making. Specifically in relation to the OBR, the additional transparency referred to in the amendment is already required by the statutory charter for budget responsibility, which says at paragraph 3.9:
“The Budget Report shall provide, at a minimum: an explanation and costing of the impact of all significant fiscal policy measures introduced by the Government since the last Budget and an explanation of the methodology used to cost the fiscal impact of each of those measures”.
In relation to the Bill, I draw the hon. Gentleman’s attention to clause 4(6), which explicitly refers to the OBR’s reports being clear in explaining the factors that it took into account when preparing the report—not only the assumptions that he mentioned but the main risks that it considered to be relevant. So there is a safeguard not only in the charter but in the Bill to ensure that there is transparency about how the official forecasts have been arrived at.
On amendment 6, the OBR is accountable to Parliament in order to enhance Parliament’s ability to hold the Government to account for fiscal policy. The OBR’s forecasts and analysis will be laid directly before the House. The budget responsibility committee will be appointed with the consent of the Treasury Committee, and will be available for scrutiny. There will be separate reporting to Parliament of the OBR’s expenditure, and, as many Members have already discovered, relevant written questions will be answered by the OBR. The OBR is also accountable to the Chancellor, reflecting its role in producing the official forecast, which will form the basis of the Chancellor’s Budget decisions.
Herein lies the challenge to Labour Members. The OBR will provide the Government with timely access to the information necessary to reach policy decisions ahead of fiscal policy events. The Treasury Committee recognised that in its report last year, when it said:
“Involvement In the Budget process necessarily involves close contact between the Treasury and the OBR”.
Close working also means that the OBR has access to all Government information to ensure that its conclusions reflect the most accurate and up-to-date information. It is therefore right that the OBR provides the Government with pre-release access to its forecast in order to ensure the accuracy of both it and the Budget documents, which are published simultaneously.
It is also right that there is transparency in the approach to the sharing of information. The OBR has chosen to follow the well-established pre-release practices put in place by the Office for National Statistics. I can assure the House that this arrangement does not compromise the OBR’s independence. It is an approach that has worked well for the ONS. The OBR has been transparent about when reports have been shared. It confirmed in its November “Economic and fiscal outlook”:
“We have come under no pressure from ministers, advisers or officials to change any of our conclusions.”
The OBR’s access to Government information distinguishes it from other UK forecasting organisations, and ensures that the Chancellor and Parliament are provided with the most up-to-date information regarding the latest UK economy and public finance figures.
I understand the rationale behind amendment 6. However, given the practicalities of the OBR’s accountability to the Chancellor and its role in producing the official forecasts, we feel that it is better for it to act on its own decision to follow the ONS pre-release guidelines. I will resist both amendments.
Chris Leslie
I am getting used to the hon. Lady’s resistance to our amendments. One day we will persuade her to accept even the smallest, most generous Opposition amendment, but perhaps not to this Bill.
I understand the points that the hon. Lady made about amendment 2 and costings. I know that there have been attempts to broaden access. If and when we hit obstacles or refusal to publish, we will come back to her to try to get more information into the public domain. However, I accept that she is committed to a particular direction of travel, so we shall not press the amendment.
On amendment 6, the Minister seems to understand that several members of the Public Bill Committee might have hoped for an Office for Budget Responsibility that looked more akin to the Congressional Budget Office or a parliamentary budget office, and was a little bit closer to the legislature and less cosy with the Executive. She knows why we want that. If the OBR places absolute primacy on its independence and impartiality, we must surely move away from any perceived suspicion that it is too close to or cosy with the Executive of the day.
We know that there is due to be a review of the OBR within a number of years. How that review will take place is a bit of a moot point, but we will come to that in due course. The Economic Secretary understands that we will be watching carefully for circumstances in which the OBR is too close to the Chancellor of the Exchequer. It is vital for it to remain distant from, and impartial between, the political parties. It must also have a good dialogue with Parliament.
Those are the important points that we wanted to make, and we know that the OBR will be listening to this debate. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Third Reading
Queen’s consent signified.
Justine Greening
I beg to move, That the Bill be now read the Third time.
As we have heard, this is an important Bill. It puts the new Office for Budget Responsibility on a statutory footing, and puts in place reforms to the corporate governance of the National Audit Office.
As part of a new and enhanced fiscal framework, the OBR is being established to make independent assessments of the public finances and the economy. For the first time the judgments underpinning the official forecast will be determined by independent experts, not Treasury Ministers. Since the coalition was formed last year, every official forecast for the economy and the public finances has been produced by the independent OBR. When the Chancellor presents his Budget tomorrow, it will be accompanied by the OBR’s official forecast. The establishment of the OBR has been welcomed by the International Monetary Fund and the OECD.
The main duty of the OBR, as we have heard, is to examine and report on the sustainability of the public finances. The Bill makes it explicit that the OBR has complete discretion over how it carries out its statutory duties. That is a broad remit. It is not limited to forecasting, but the OBR will be required, as a minimum, to produce economic and fiscal forecasts at least twice a year; make an assessment of the likelihood of the Government meeting their fiscal mandate alongside those forecasts; publish a sustainability report at least once a year; and publish a report on the accuracy of its forecasts at least once a year.
The OBR must perform its duty objectively, transparently, impartially and on the basis of Government policy. Those principles will protect independence and ensure that there is a clear separation between analysis and policy making. Analysis is rightly the domain of the OBR, but policy making is the responsibility of publicly elected Ministers.
The charter for budget responsibility will set out further details on the OBR’s remit. A full draft was published in November, and a final version will be laid before Parliament once the Bill has come into force. The OBR will report directly to Parliament on the public finances. The budget responsibility committee will be available for Select Committee scrutiny. The OBR’s forecasts and analysis will be laid before the House. On funding, there will be separate reporting of the OBR’s expenditure in the estimate that the Treasury presents to Parliament. In addition, the OBR will be able to submit an additional memorandum, alongside that of the Treasury. As we have heard, written questions will be passed to the OBR to be responded to. All those measures will enhance the ability of Parliament and the public to hold the Government to account for their fiscal policy.
The OBR will have its own legal identity, and will be a civil service employer, to allow appropriately skilled staff to move easily to and from the OBR. The OBR’s executive responsibilities will be led by the three-person budget responsibility committee. Its members will be appointed by the Chancellor, and the Bill provides the Treasury Committee with a veto over their appointment and dismissal. The Chancellor has said that he is giving the Treasury Committee that veto to ensure that there is no doubt that the individuals leading the OBR are independent and have the support and approval of the Treasury Committee. All staff will report to the chair of the OBR, and that person will control the hiring and firing of staff. To provide support and constructive challenge, there will be at least two non-executive members. Advertisements for those members will be issued shortly, so that they can be in place before the summer recess.
Part 2 of the Bill modernises the governance of the National Audit Office. It will strengthen the resilience and integrity of that body, which is best placed to assess the Government’s use of public funds at this time of fiscal constraint. It builds on the recommendations of the all-party Public Accounts Commission’s 15th report and has commanded support on all sides of this House. The provisions passed through the House in substantially the same form in the previous Parliament, when they were considered as part of the previous Government’s Constitutional Reform and Governance Act 2010, just before the election.
The Bill has benefited from much parliamentary scrutiny. Before it was introduced, the Treasury Committee produced a detailed inquiry into these matters. I am pleased to say that the Bill is very much in line with the recommendations made in that report. I thank the Committee for the interest it has taken. When the Bill was introduced in the other place it received extensive debate. The Government tabled a number of amendments to bolster the OBR’s remit and to enhance the arrangements for the scrutiny of its work, which were welcomed.
Finally, the Bill has been debated at length in this House. I thank all hon. Members who have spoken and participated, in particular the Opposition spokesmen, the hon. Members for Bristol East (Kerry McCarthy) and for Nottingham East (Chris Leslie). I hope that hon. Members will agree that even though we have not reached a meeting of minds on some of the detail, there is much more on which we agree in principle.
The Bill is a key part of the Government’s fiscal reforms. It will provide an independent assessment of the public finances and the economy, with official forecasts from independent experts, not Treasury Ministers. The Bill will provide a strong institutional foundation for the future through the OBR, and I commend it to the House.
Kerry McCarthy (Bristol East) (Lab)
The Opposition support the Bill. It has been debated at length in the other place and in this House on Second Reading, in Committee and—perhaps at greater length than some of us anticipated—on Report today.
Not much has been said during the passage of the Bill about part 2, which relates to the National Audit Office. That is not least because it implements the measures that were introduced in the Constitutional Reform and Governance Act 2010. It is fair to say that there is widespread agreement on part 2.
As was clear in previous proceedings, there is similarly common agreement on the creation of the Office for Budget Responsibility and on placing it on a statutory footing. We did, however, table a number of amendments in Committee to challenge some of the details of how the OBR will function, as one would expect from the Opposition. In particular, we addressed the concern that has been expressed inside and outside this House that the OBR may not turn out to be sufficiently independent from the Government. For the public to have confidence in the OBR, it has to be seen to be independent. That is why we proposed measures that would have made it more accountable to the House and measures that would have increased the role of the Treasury Committee. We also wanted to ensure that the division between the Treasury and the OBR in terms of staffing and premises was enshrined in law. We are grateful for the assurances that the Economic Secretary gave in Committee on those points. We also welcome her promise that substantive details of the contact between OBR staff and the Minister’s special advisers and private office staff will be published.
We were also concerned about the potential overlap between the OBR’s responsibilities and the Bank of England’s economic forecasts. We therefore proposed that the Bill provide for a memorandum of understanding to ensure that there was clarity from the outset for all parties. I urge the Economic Secretary to ensure that the memorandum is subject to proper scrutiny in this House. I hope that the OBR and the Bank of England will in time formally agree their working relationship.
We consider that a crucial way to secure the independence of the OBR is to ensure transparency in its funding so that the budget responsibility committee is not at the mercy of the Treasury and vulnerable to the whim of the Chancellor. Comparisons with other countries were made earlier. In Canada, the Parliamentary Budget Officer published two critical reports of the Government in its first year. It is difficult to divorce that from the fact that its budget was frozen, despite promises that it would be increased by a third. Some people would say that that was not a coincidence.
Likewise, Sweden has a similar organisation to the OBR in its Fiscal Policy Council, which reported that its resources were not sufficient to enable it to carry out its remit properly. In response, the Minister for Finance suggested that the council’s budget be cut. We obviously want to avoid a situation like that, and we have received assurances from the Economic Secretary that the OBR’s funding is secure for the next five years. We very much welcome that.
Much of the OBR’s decisions and remit will be based on the charter, so it is disappointing that we have not had the opportunity to scrutinise the revised charter today alongside the Bill given that it is so central to the OBR. The Economic Secretary has assured us that it will be published promptly after Royal Assent, which we expect in no time at all, so we look forward to a full debate on the charter in the Chamber before too long.
Although we support the principle of the OBR and the Bill, we have reservations about how the OBR will work in practice. A major concern is the Treasury’s insular conception of economic policy and sustainability, which seemingly allows it to focus narrowly on the deficit and to ignore the consequences of its own policies. Rising unemployment, rising inflation, as seen in today’s figures, and falling growth are not sustainable and cannot be ignored, so we hoped that the Government would allow the OBR the latitude to take into account those crucial determinants for the long-term recovery, even if the Treasury will not. Unfortunately our amendments were rejected, so we could not enshrine that in the Bill, but we hope that a truly independent OBR will include those matters in its remit. The House may well return to the definition of “sustainability” and the issue of intergenerational fairness when we come to debate the revised charter.
During Labour’s last Budget, the present Prime Minister was fond of claiming that our growth forecasts did not match those of the independent experts. In fact, they were consistently much more reliable than he made out. He concluded:
“What we need is a proper independent office of Budget responsibility, which we would set up to set independent forecasts and to keep the Chancellor honest.”—[Official Report, 24 March 2010; Vol. 508, c. 268.]
I agree with the present Prime Minister, for once, about the need for that, but as is so often the case, the reality does not match his rhetoric. Now we have the OBR, but its independence has been undermined by the release of favourable figures in time for a recent Prime Minister’s Question Time.
Moreover, the British Chambers of Commerce has described the OBR’s growth forecasts as “too optimistic”, and despite the Prime Minister’s concern that official forecasts should match those of independent experts, it seems that other independent experts disagree with the Government’s independent experts. In February, the consensus forecast for 2011 was 1.9% growth, which was downgraded to 1.8% in March, whereas the OBR forecast was a more optimistic 2.1%. The discrepancy increases for next year’s forecast. The consensus forecast is 2.1%, compared with the OBR figure of 2.6%, which it has already had to downgrade once thanks to the Government’s policies.
The differences between the OBR and consensus forecasts could be critical. The Institute for Fiscal Studies, which the Government seem to respect on the occasions when it says anything favourable about their policies, has reported that they will fail to achieve their fiscal mandate to
“achieve cyclically-adjusted current budget balance by the end of the rolling, five-year forecast horizon”
if growth does not meet the OBR’s central economic forecast. Whether the Chancellor will achieve his fiscal mandate is clearly in the balance, and although he may use the OBR figures, it would be a great mistake if we held the OBR responsible for whether he fulfils that mandate. Only the Treasury can determine that.
Fundamentally, and finally, we have to remember that the Bill places no enforceable obligations on the Chancellor for responsible fiscal policy. The OBR can report on the state of the economy, and its analysis will no doubt be very valuable, provided it is genuinely independent. However, the Government already have a track record of ignoring expert advice and indisputable evidence that their policies are failing.
The British Medical Association and almost every health organisation that we care to think of warned against the Health Secretary’s reckless experiment with the national health service, but with the Prime Minister’s full backing, he ignored the evidence and carried on regardless. The IFS published independent research proving that the Government’s June Budget and comprehensive spending review would disproportionately hurt women and children and the most vulnerable people in our big society, but the Chancellor ignored the evidence and carried on regardless.
The Office for National Statistics reported that unemployment had reached a 17-year high and that youth unemployment was at its highest level ever, and the OBR itself reported that the Tory-Liberal Democrat plans would mean 110,000 more people on the dole by the end of this Parliament, but did the Chancellor and the Secretary of State for Work and Pensions review their policies in the light of that evidence? No, they ignored the evidence and carried on regardless.
The OBR downgraded growth forecasts after the coalition’s emergency Budget, and again as a result of its comprehensive spending review, and the economy contracted by 0.6% in the last quarter of 2010, proving that the Government’s policies had undermined the economic recovery, but the Chancellor ignored the evidence and blamed it on the snow. The question for the House is whether we can do enough to secure the status of the OBR so that ideologically driven Ministers cannot just disregard its reports.
Kerry McCarthy
No, I am just drawing to a close.
I urge the Minister to ensure that the principles of objectivity, transparency and impartiality are respected, particularly when she lays the revised charter before the House. Most importantly, we seek assurances that Ministers will actually listen to the evidence provided by the OBR and respond accordingly.
When the Chancellor came to office, unemployment was falling, growth was predicted at 2.3% for this year, inflation was lower and falling, and borrowing had come in £20 billion lower than was forecast in 2009. I do not need to tell the House again how the Chancellor has reversed that recovery, but that is the context in which we must consider the role of the OBR. The office is intended to report on responsibility, but it cannot guarantee responsibility. That is the Chancellor’s role, and it is about time he realised it.
Stephen Williams
This is a short but very important Bill which I hope will change the conduct of economic debates. Of course, we have a Budget and days of economic debate starting tomorrow. I do not know whether the former Prime Minister and Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), is going to be with us in person, but I am sure that his parliamentary ghost will be with us as we remember Budgets from previous years. We remember his earlier Budgets and his close relationship with Prudence, and we remember that after the 2001 general election was safely out of the way, spending soared. So began the structural deficit, long before the intervention of the banking crisis.
I remember listening to those Budgets, autumn statements and pre-Budget reports year after year, both in a professional environment before I became a Member of Parliament and, from 2005, as an MP. I remember listening to the then Chancellor’s reports of rosy growth and nirvana ahead of us. We heard a bit more of that today from my neighbour, the hon. Member for Bristol East (Kerry McCarthy). One would swear that the current Government had inherited a golden legacy in May 2010 rather than the catastrophic public finances that we are actually having to cope with.
Mark Tami (Alyn and Deeside) (Lab)
Does the hon. Gentleman recall that at the time, the Liberal Democrats were attacking the Government by saying that they were not spending enough, not that they were spending too much?
Stephen Williams
I recall very well that from 2001 onwards I and my colleagues, whether candidates or Members of Parliament, were saying that the Government should spend more on health and education, but we actually said where the money was going to come from. It may not have been popular, and it did not lead to great electoral success in 2001, but we said it should come from an increase in taxation, not from building up a structural deficit over the next six years.
We all remember the Budgets back then—they were essentially a combination of forecasting, policy, boasting and spin. That is why the OBR is so welcome. In the Budget tomorrow, the Government will take political responsibility for the difficult decisions that we have to make. I welcome that, and I welcome the scrutiny of it. It will be based on a separation of forecasting by independent experts and policy making by elected politicians.
There will certainly be no scope for boasting, and I think it will be some time yet before the coalition Government can take credit for rescuing this country from the dire economic circumstances in which we find ourselves. I cannot promise a complete absence of spin—that would be asking too much of all of us—but we will have a Budget based on independent forecasts and sound political judgment, and it will be a better Budget for that.
Mr Andrew Tyrie (Chichester) (Con)
The Chancellor took a major step by handing responsibility for fiscal forecasting to an independent body, and he took an equally bold step by asking it produce a long-term assessment of the strength of the public finances. He could have opted for a validation model, and instead he has gone for something much more adventurous.
The first inquiry of any significance that the Treasury Committee undertook after it was reformed at the start of this Parliament was on this subject. Rather than wait for the Government to come forward with a draft Bill, we took the initiative and tried to make some suggestions on how we thought it should look. We set eight criteria as minimum requirements for the new body, which for the most part the Government met. I thank the Treasury team for their co-operation in doing what they could to accommodate the Committee’s points.
Absolutely crucial to the success of the new body will be its credibility on independence. To achieve that, some new, groundbreaking arrangements have been made in the relationship between parliamentary Committees and the Executive. The Bill establishes a statutory veto for the Treasury Committee over the appointment of the chairman and executive members of the OBR. This is the first time that a Select Committee has been given such a veto over public appointments, which reflects the importance of cross-party parliamentary oversight of the OBR’s work, and the need for people of the highest calibre and independence to take on the job of running the OBR.
The Treasury Committee has already held its first appointment hearings for the OBR committee, and endorsed the appointments of Robert Chote, Stephen Nickell and Graham Parker. We also welcomed the appointment of two non-executive members. We were particular eager that there should be non-exec oversight of the work of the executives. The non-execs will provide an important check to ensure that the OBR lives up to its requirement to act transparently, objectively and independently.
Non-execs provide an opportunity for two-way traffic. If the OBR chairman becomes a patsy, they have a good chance of alerting the Treasury Committee at an early stage. If the Chancellor or the Treasury lean on the chairman too much, the non-execs offer a first line of defence. If the OBR chairman gets carried away and starts to offer a running commentary beyond his brief on the overall conduct of fiscal policy, the non-execs, as a first port of call, can say, “Steady on.”
The Committee looked carefully at how the OBR’s success ought to be measured. Economic forecasting is an imprecise art, and success on that cannot necessarily tell us much. To be seen as successful, the OBR must provide clear, impartial forecasts and a commentary that improves public debate on the key issues. It must guard against optimism and pessimism, and above all, it must avoid being drawn into political controversy. The Treasury Committee will monitor how the OBR fulfils those performance criteria. We will watch carefully and speak up if we feel that the OBR is not doing its job properly.
Of course, ultimately and simply, the OBR will be judged on the quality of its publications and its responsiveness to reasonable requests from Parliament or the Government for information or work. A few weeks ago, I wrote on behalf of the Treasury Committee to the OBR chairman to seek further information on the treatment of privatisation receipts in the accounts. Frankly, I was not encouraged by his reply. These are early days, and I very much hope that there is more responsiveness to future requests.
In two ways, the Government did not fully implement the Treasury Committee’s recommendations. The Committee asked that an independent group accountable to Parliament be set up after five years to review the OBR’s work. We said that among other things, that group should examine whether the model for the forecasting body chosen by the Chancellor was the right one in the light of experience. To make that judgment, the group would need to examine both the validation model and the much more independent model—the fully independent model—implied by the Congressional Budget Office in the United States. I think, and the Committee concluded, that judging which model is best should be done after a period of experience of the OBR’s work, which is why we suggested the five-year review. I urge the Government to agree, on a non-statutory basis, that the five-year review should report directly to Parliament rather than to the Government via the non-executives, as the legislation currently envisages.
One other proposal in the Treasury Committee report is that the OBR should retain the ability to assess the robustness of the fiscal plans of major political parties in the run-up to an election. That would enhance the quality of debate and take us forward from the world of claim and counter-claim on Labour tax bombshells and Tory stealth cuts and so on, which often leave the public perplexed and do not necessarily move the debate forward much. Although the Bill does not rule that out, it strongly discourages such a role.
I understand the OBR’s reluctance to get involved in anything that could prejudice its appearance of independence, but I hope the door is not completely closed to the idea. Public understanding of what is at stake in elections could be enhanced by the OBR’s involvement. Furthermore, the need for such scrutiny might make parties more careful with their claims and improve their pre-election proposals. I hope we can return to that idea when the OBR’s reputation for independence has been firmly established after a run of years—that could also form part of the five-year review to which I alluded.
Overall, the Treasury Committee was greatly heartened by the degree of engagement from the Government and from the Opposition over the creation of the OBR. That demonstrates that the Select Committee corridor can influence policy rather than just offer critiques of it, which I hope marks a way ahead for improving legislation more widely.
Question put and agreed to.
Bill accordingly read the Third time and passed, with an amendment.