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Luke Graham (Ochil and South Perthshire) (Con)
I beg to move,
That this House has considered the remit of the Office for Budget Responsibility.
It is always a pleasure to speak under your guidance, Mr Gray. I thank those who have turned up on the last day of Parliament before recess; I know that we are all keen to get back to our constituencies, but the opportunity to debate the remit of the Office for Budget Responsibility was evidently too good to turn down. Before I begin, I would like to acknowledge the OBR, the Congressional Budget Office and the CPB in the Netherlands, as well as the House of Commons Library, as the key sources of my speech.
Credibility has become an enormous problem in modern-day politics—the credibility of not only individual politicians but policies and the numbers in our political discourse. The old adage rings true: Members often use numbers as a drunk man would use a lamp post—as a prop, as opposed to for illumination. We need to get back to numbers helping to illuminate our debate. They should help to inform decision making to bring a degree of objectivity to our debate—in this Chamber and the main Chamber.
I will start by looking in depth at the OBR’s current powers, in order that Members better understand why I believe we should expand its remit. First, I want to provide a brief overview of what the OBR currently does. The OBR was created by the coalition Government in 2010 to provide independent, authoritative analysis of the UK’s public finances, on the back of the 2008 financial crash. It has five main roles, and I will look at each of them, starting with economic and fiscal forecasting.
Twice every year—for the Budget and for the spring statement—the OBR produces five-year forecasts of the economy and the public finances. Forecast details are set out in the “Economic and fiscal outlook”, while the annual “Forecast evaluation report” it publishes each autumn compares the forecasts to the subsequent out-turns and draws lessons for future forecasts. The forecasts also incorporate the impact of any tax and spending measures announced in the two statements by the Chancellor.
The OBR also has a responsibility to evaluate the Government’s performance against targets, using the public finance forecast to judge the Government’s performance against their fiscal and welfare spending targets. Furthermore, in the “Economic and fiscal outlook”, the OBR assesses whether there is a greater than 50% chance of hitting the targets under the current policy measures.
For example, in March 2014, the Government set a self-imposed cash limit on a subset of their social security and tax credit spending. In the 2016 autumn statement, the Government redefined the cap to apply only in 2021-22, preceded by a pathway to that fixed date. The charter for budget responsibility requires that the Government set a new welfare cap in the first Budget of a new Parliament, so the cap was adjusted in the 2017 autumn statement, which applied to 2022-23. It is the OBR’s responsibility to monitor the Government’s progress against that pathway and to assess in each “Economic and fiscal outlook” report whether they are on course to meet the cap in the target year.
The OBR’s annual “Welfare trends report” also examines the drivers of welfare spending, including elements inside and outside the cap. Those represent just some examples of how the OBR continues to monitor and evaluate the Government’s performance against their own targets.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Gentleman on bringing this matter to Westminster Hall for consideration. Does he agree that the OBR’s team has withstood internal and external scrutiny and audits extremely well? There is certainly scope to expand its remit, to deliver a high level of accountability across the wider region. In other words, what the OBR does now could go further. Does the hon. Gentleman agree?
Luke Graham
I agree, and I will go into more detail later on exactly how I propose the powers should be extended and how to move forward.
The OBR provides sustainability and balance sheet analysis, which assesses the long-term sustainability of the public finances. The OBR’s “Fiscal sustainability report” sets out long-term projections for different categories of spending, revenue and financial transactions, and assesses whether they imply a sustainable path for public sector debt. That has arguably been a particularly important metric as we have sought to make the public finances more manageable and sustainable after the financial crash in 2008. There was a kick there aimed at the last Labour Government, but I will resist that for now.
The “Fiscal sustainability report” also analyses the public sector’s balance sheet, using both conventional national accounts measures and the whole of Government accounts, prepared using commercial accounting principles. Since 2016, the “Fiscal sustainability report” has been published once every two years, reflecting the frequency with which the Office for National Statistics updates its population projections.
The OBR evaluates fiscal risks every two years by publishing a comprehensive review of the risks from the economy and financial system in its “Fiscal risks report”. The first was published in July 2017, and the OBR analysed tax revenues, public spending and the balance sheet and included a fiscal stress test. Furthermore, the OBR produces central forecasts and projections for the public finances, while the “Economic and fiscal outlook” and the “Fiscal sustainability report” include discussion of the risks—both upside and downside—to those forecasts and projections.
The whole of Government accounts provide further information on specific fiscal risks, notably contingent liabilities such as Government guarantees, and that is in the “Fiscal sustainability report”. As a member of the Public Accounts Committee, I have the joy of taking part in, and leading on, the inquiry into the whole of Government accounts. The Committee recognised the fine work of the Departments and the civil servants that pull together those accounts, which really are of a very high standard and are certainly world leading.
John Howell (Henley) (Con)
One recent OBR report is about probably the biggest challenge that we as a country face—our ageing population and the associated social and healthcare risks. I found that report very useful. Does my hon. Friend think that such activity is a good use of the OBR?
Luke Graham
I do. That kind of objective analysis from the OBR could help to inform and shape some of our public debate. It could certainly make sure that policy debates in the House are informed by substantive, objective figures that would hopefully have cross-party support.
Finally, the OBR is responsible for scrutinising the Government’s tax and welfare policy costings, which it does at each Budget. The Government provide draft costings in the run-up to each statement, which are subjected to detailed scrutiny and challenge. The OBR also states in each “Economic and fiscal outlook” report and in the “Policy costings” document whether it endorses the Government’s published costings as reasonable central estimates and whether it would use them in its forecast. It also gives each costing an uncertainty rating, based on the data underpinning it, the complexity of the modelling involved and the possible behavioural impact of the policy.
Those five major roles all focus on the UK-wide public finances. However, the Government have also asked the OBR to forecast the receipts from taxes that they have devolved—or intend to devolve—to the devolved Administrations. It is therefore clear that the OBR already has an extensive remit, with a great deal of responsibilities, not only to deliver information to the Government, but to ensure accuracy so that that information is reliable enough that the Government can make acceptable fiscal decisions.
On the earlier point about the OBR’s performance, it has forecast, on average, within 0.3% accuracy of actual economic growth over the past seven years. While the exact accuracy in any given year has of course varied, the OBR has, to its credit, sustained an accurate reporting standard over a significant period of time. If anything, it has slightly underestimated economic growth in its predictions, showing a propensity for conservative estimates, which does it much credit. Indeed, the one outlier in its predictions is from 2013. For that year, it predicted a slowing of growth, but, in fact, thanks to the Conservative-led coalition Government’s policies, we experienced a 2.1% growth rate. It is worth noting that, without that outlier, the OBR has achieved accuracy to 0.1% in its predictions. That is a sound endorsement of its expertise.
Why do I believe that we should extend the OBR’s powers? First, it is worth remembering that independent budgetary offices are well established and well respected in other countries. In the Netherlands, the Bureau for Economy Policy Analysis, the CPB, has been in place since 1945. It is fully independent; it has its own legal mandate and an independent executive and advisory committee. Research is carried out on the CPB’s own initiative or at the request of the Government, Parliament, individual Members of Parliament, national trade unions or employers’ federations. It analyses the effects of current and future Government policies, and it is responsible for producing quarterly economic forecasts, as well as a spring forecast and a macroeconomic outlook, which is published alongside that country’s Budget in September. Taken as a whole, those forecasts provide a basis for extended socioeconomic decision making in the Netherlands.
The CPB analyses policy proposals, but also evaluates the effects of policy measures that have already been implemented. Since the early 1950s, the bureau has been analysing the costs and benefits of large infrastructure projects. It also conducts research in a wide range of areas, including, but not exclusively, the economic effects of ageing, globalisation, healthcare, education, the financial crisis and the regulation of markets.
Since 1986, the CPB has offered political parties an analysis of the economic effects of the policy proposals in their election manifestos. The plans of the participating parties are analysed identically, which offers voters a comprehensive tool for comparison of the parties and contributes to the transparency of the election process.
However, it was during a visit by the Public Accounts Committee to our American counterparts earlier this year that the idea of expanding the OBR’s remit came to me. During the visit, we learned about the Congressional Budget Office—a similar independent fiscal advisory organisation—based in Congress, in Washington DC. The CBO was created by the Congressional Budget and Impoundment Control Act 1974 as a non-partisan agency that produces independent analysis of budgetary and economic issues to support the congressional budget process. Interestingly, the CBO was based on the Californian Legislative Analyst’s Office, which manages the state budget in a non-partisan manner. To this day, the CBO provides analysis for state and local government where congressional committees report on legislation that applies to those levels of government.
The CBO’s mission is to help Congress to make effective budget and economic policy. The CBO discharges a number of key responsibilities, and I want to examine a few of them in greater depth. First, in broad practical terms, each year the agency’s economists and budget analysts produce reports and hundreds of cost estimates for proposed legislation. The CBO does not make policy recommendations; its reports and other instruments, which summarise the methodology underlying the analysis, help to inform policy decisions and the debates that subsequently take place in Congress.
If we look a little deeper into that, we see that among the CBO’s statutory requirements is the production of certain reports, the best known of which is the annual “Budget and Economic Outlook”. That report includes the CBO’s baseline budgetary and economic projections. The CBO is also required by law to produce a formal cost estimate for nearly every Bill approved by a full committee of either the House of Representatives or the Senate. Those cost estimates are only advisory. They can, but do not have to, be used to enforce budgetary rules or targets. Moreover, the CBO does not enforce such budgetary rules, although its work informs them; the budget committees enforce the rules. The power still lies with the politicians, but they are making much more informed choices.
It is important to remember that it is Congress that sets the CBO’s priorities; it is not the President, either of the major political parties or the CBO itself. However, I understand from conversations with counterparts in the United States that the CBO has become more open to the majority and minority leadership—both sides—in the House of Representatives and the Senate putting forward proposals to or making requests of the CBO. The CBO follows processes specified in statute or developed by the agency in concert with the budget committees and the congressional leadership. The CBO’s chief responsibility under what is known as the Budget Act is to help the budget committees with the matters under their jurisdiction.
For the CBO to be able to provide analysis to the breadth of recipients described, its analysis must be objective, impartial and non-partisan. The CBO achieves that by refusing to make any policy recommendations and by hiring people on the basis of their expertise and without regard to political affiliation. Analysts are required to conduct objective analysis, regardless of their own personal views. Strict rules to prevent employees from having financial conflicts of interest and to limit their political activities are enforced. That is in line with the requirements for our own civil service.
Importantly, the reports by the CBO are designed to reflect the full range of experts’ views, as it is required to present the likely consequences of proposals being considered by Congress. By their nature, the estimates are uncertain, but the estimates provided are in the middle of the distribution of potential outcomes. The CBO also undertakes a range of dynamic modelling. It will look not just at the impact of one policy and assume ceteris paribus that the rest of the world is held constant; it will also look at the impact that that one variable will have on other policies, to provide a more complete scenario forecast and recommendations to the various committees.
Kirsty Blackman (Aberdeen North) (SNP)
The hon. Gentleman is making a very interesting speech. When the Government here announce that they will put in place a particular measure—a tax relief, for example—and that it will raise such and such revenue or cost such and such, I am concerned that that number is not then properly checked to prove whether the measure did or did not. Does the CBO check policies afterwards to work out whether its forecasting was accurate?
Luke Graham
I thank the hon. Lady for her question. I believe that the CBO does do that and I will certainly come back to her on that point. When we were looking at some of the benefits, tracking after legislation was also, I believe, in the remit of the CBO, but I am more than happy to write to the hon. Lady to confirm that. I agree that what she refers to is incredibly important. Just in the year that I have been in the House, I have seen the pace at which Westminster moves. Policies flare up in the House of Commons; there is an enormous amount of press and focus on them; and two months later, they are almost entirely forgotten. Having some recourse is essential. Of course, that does exist through the Public Accounts Committee—and, in America, through the similar budget review committees. That is usually where the costs and benefits analysis to check whether policies have worked takes place, so this may be one less task for the OBR. It could certainly help to provide some of the analysis, but that task would probably fall more within the remit, certainly in the United Kingdom, of the National Audit Office, as opposed to an extended OBR, so that we keep the division of labour.
Jim Shannon
I thank the hon. Gentleman for the very detailed, comprehensive speech that he is making. He has outlined clearly the issues in relation to this organisation; I just wonder whether he has given any thought to the idea that teamwork makes the dream work. Does he agree that there is a need to ensure that there is constant training of team members, so that the natural ingoing and outgoing nature of the job that they do does not affect the high standard of work being provided by the office? In other words, it is important that the staff are trained and kept up to date with all things that are happening in order for a good organisation to work better.
Luke Graham
I do agree. As I have mentioned, a hallmark of the CBO is the high standard of staff it employs. That is based on their expertise and ensuring that the right people are hired for the right role and that training is maintained in the office as well, so that expertise is not lost with standard staff turnover.
The CBO maintains its objectivity through a rigorous system of checks and balances. All the CBO’s cost estimates and reports are reviewed internally for objectivity, analytical soundness, and clarity. That process involves many people at various levels in the agency. Analysts’ consultations with outside experts help them to hear all perspectives on an issue.
Furthermore, the CBO evolves as the needs of Congress evolve. It has remained true to its original mission, but, as legislation has grown more complex, it has found itself spending more time providing preliminary analysis and technical assistance during the drafting stage of laws. The CBO is being asked more often to prepare cost estimates for Bills that are heading for votes without being marked up by committees first.
I emphasise that the CBO is strictly non-partisan. It conducts objective, impartial analysis, and importantly that analysis is accepted among economists and, consequently, by both parties in Washington. The CBO has historically issued credible forecasts of the effects of both Democratic and Republican legislative proposals.
That brings me to the last thing that I want to propose for the OBR. It is crucial that the independence of the Congressional Budget Office is accepted and beyond reproach, because it monitors and marks the policies and proposals of not only the Government, but the opposition. The independence of the Office for Budget Responsibility is, I believe, beyond reproach, but it only monitors Government policies. The Budget Responsibility and National Audit Act 2011, which founded the OBR, states that where any UK Government policies are relevant to the performance of the OBR’s duty of examining and reporting on the sustainability of the public finances, the OBR
“may not consider what the effect of any alternative policies would be.”
That rules out analysing Opposition spending plans.
My proposal, therefore, is to extend the powers of the Office for Budget Responsibility to create a body that replicates the function of the CBO in the United States, providing independent analysis to hold spending commitments to account. The aim of my proposal is to extend the powers of the OBR, providing it with additional responsibility to assess, analyse and score every piece of legislation that goes through the Houses of Parliament for financial or fiscal impact. It will maintain its strict independence, making it acceptable on both sides of House, regardless of which party is in government.
The purpose of my proposal is to enable the OBR to provide independent information and analysis, in order to combat “fake news” and misinformation being circulated on Government and Opposition spending plans. Wild spending commitments have been made, particularly by Opposition parties in the past, for example over the abolition of tuition fees, with no responsibility to deliver while out of office and, therefore, no accountability.
Let us look at the Brexit debate. How much better could the debate have been had there been an independent body, such as the OBR, providing accurate analysis of the impact of the costs and opportunities of Brexit? It would have taken the pressure off the Government and given us analysis that would be accepted by all parties. We could then have debated how to make the best of Brexit—or not—rather than the endless debates we have had over bus-side promises, scaremongering over power grabs or whether the Brexit deal was sufficiently hard, soft or anywhere in between.
John Howell
How does my hon. Friend think the OBR would have reported, if it had been given that role?
Luke Graham
I do not know whether I am sufficiently qualified to project on to the OBR the conclusion it might come to. I am sure it would have provided additional food for thought, to contribute to the debate.
As I have already mentioned, other countries have long-established and well respected independent fiscal bodies, which provide analysis that is respected and accepted across the political spectrum. That allows the politicians to debate the substantive matter, not subjective opinion. Establishing an independent system of accountability will hold manifesto commitments to account before an election, making fiscal sustainability a manifesto premium, and negating the opposition’s ability to garner support through unsustainable spending commitments. In turn, this will allow us, as politicians, to focus our debates on the content and direction of our proposals without having to waste time debating the credibility of the figures.
This is not the first time that this proposal has been suggested. In March 2014, Robert Chote, the chairman of the OBR, recommended to the Treasury Committee in a hearing that opposition party policies should be costed by the OBR, in order to improve the quality of public debate. Mr Chote was confident that it was within the OBR’s capabilities, although not in its current remit, to review party manifestos for a general election, so long as the parties could agree the terms of reference. During that Treasury Committee hearing, Mr Chote said that he supported
“the OBR having a role in the costing of political parties’ manifestos in the run-up to an election”.
He said:
“if Parliament wishes us to go down this route then it does offer the prospect of improving the quality of policy development for individual parties and it potentially improves the quality of public debate”.
The then shadow Chancellor, Ed Balls, wrote to Mr Chote, asking the OBR to assess the Opposition’s manifesto pledges, while Danny Alexander of the Lib Dems—then Chief Secretary to the Treasury—also supported the proposal.
The New Statesman, hardly known as a Conservative party mouthpiece, wrote in 2015:
“Successful fiscal councils overseas demonstrate the need to balance responsibility with credibility. The Dutch CPB is an established part of the political landscape and plays an instrumental role in setting budgets and evaluating manifesto pledges. In the US, the Congressional Budget Office assesses alternative policy options for the government. The credibility of these institutions has been built over decades…evaluating manifestos should be the beginning of the OBR’s expanding set of responsibilities, not the end.”
Each piece of legislation put before the House, would, therefore, be scored, costed, and subjected to objective analysis and scenario planning, so that politicians can have a more informed debate. That would give us greater focus on smaller initiatives, many of which are announced in the House and passed within one news cycle. It would give us a better understanding of not only central Government funding, but devolved Government spending, so that we would always be clear about Barnett formula consequences and what direct funding is given to the different levels of devolved Administration throughout the United Kingdom. Finally, it would give us a more comprehensive view of our economic and fiscal outlook, so that politicians could have a more informed debate, hopefully leading to better decision-making.
There is something of a credibility crisis in politics just now. The public feel they cannot and do not trust politicians and the promises we make. That is why we should provide an independent, verified and reliable source for the figures we use in debates, one which all sides can agree on. The OBR already exists and has respect and esteem as an independent assessor of the Government, so why not extend that remit to cover all parties regardless of whether they are in Government or Opposition? There is clearly cross-party support for the proposal, as seen in my submission to the Backbench Business Committee. It would be a small but important step on the path back towards believability and reliability in our politics.
Lee Rowley (North East Derbyshire) (Con)
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Ochil and South Perthshire (Luke Graham) on securing this important debate; the relatively small number of Members in the Chamber is disproportionate to its impact, and I know our colleagues are desperate to be here and talk about these things. This is one of the most interesting and important debates the House has had in the last few weeks, in either Chamber, because underneath its surface is a series of questions that we as politicians, on both the Opposition and the Government Benches, have about what we want the debate to be around finance, fiscal policy and monetary policy in the coming years, and how we ensure that that is underpinned with a series of structures that make those debates useful and helpful for those who seek to understand and, eventually, vote on them.
I welcome the main thrust of what my hon. Friend talked about in trying to ensure that the Office for Budget Responsibility—the structure that we have in place already—could be expanded, so that it gave an understanding and indication of the costings of the myriad Bills that are introduced, whoever puts them forward, in the white heat of an election campaign, however difficult that is. That would give the electorate an opportunity to stand back—if done correctly and appropriately—and understand what people and parties were suggesting, and how responsible and, in some cases, irresponsible, those parties were being about our future financial and economic health. We have seen, over several decades, across the world, an increasing move to independent structures, whether independent central banks or independent fiscal watchdogs. I think this is a natural extension of that trend, which I would welcome.
I have both non-partisan and partisan points to make, so I will get the non-partisan ones out of the way first, before the hon. Member for Oxford East (Anneliese Dodds) intervenes on me, as I am sure she probably will. These things are important for having an educated democracy. To understand where we are going as a country, how much we are spending and the opportunities that we are putting forward for our communities, the public have to have the information so as to understand the different choices being placed before them. It is an excellent idea to give people the tools to understand the implications of the policies that are being made—with the caveats, which I will come to and which my hon. Friend has explained.
We have myriad policies that sound brilliant in isolation, and it seems they should have been implemented decades ago. In isolation, that makes the Government look as if they have been mean or not cared about certain areas. There are often reasons, however, why policies are not implemented. There are reasons things are not necessarily a good idea, even though they look good on paper. There are opportunity costs to decisions that are made. If we can have a discussion about economics and implications, we will be stronger as a democracy.
That discussion must necessarily accept that the world is complicated. In politics, there is a tendency to simplify discussions, particularly about finance and fiscal policy, to a point where they become meaningless. We talk about billions, gaps and black holes in finances without understanding the economic implications and realities of the assumptions underneath them. Wherever we are on the ideological spectrum, it is important to improve the quality of debate about our finances and about where the Government—whoever is in government—seek to take them in future.
I welcome the proposal from that non-partisan perspective and from a partisan perspective, because if it had been in place in 2017, it would have blown apart the Labour manifesto, which was the biggest work of political fiction and fantasy I have seen in my lifetime. I say that not to annoy the hon. Member for Oxford East, but on the basis that on 12 May 2017 the Institute for Fiscal Studies said:
“This manifesto cannot be summed up in mere numbers.”
It also said that the tax measures were “highly uncertain”, that key elements of it were not explained, and that there was an inherent contradiction in borrowing more and seeking to reduce debt. I know that there is a way to do that, but the quantum of debt that the Labour party manifesto suggested was entirely unrealistic. If the Labour party had got in, and if I were not here today as one of the six Members of Parliament who gained a seat from it, we would be in a problematic economic and fiscal position.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I will do the large-scale demolition later, but I will ask the hon. Gentleman one question now: where were the costings in his party’s manifesto?
Lee Rowley
No one assumes that the 2017 election was perfect on both sides. I accept the principle of what the hon. Lady says to some extent: we did not have a good economic debate in the 2017 election, and I hope proposals such as this will improve the quality and standard of future debates.
My underlying point, which is partisan but not party political, is that I am extremely concerned about the level of debt that western democracies have taken on over several decades—that is one of the reasons I am in politics. That debt is storing up huge challenges for our children and grandchildren in the coming decades.
Speaking about debt has gone out of fashion in the last couple of years; it has not been a central part of our discourse, as it was when we had a large deficit several years ago. It is a credit to the Government that that deficit has been brought down, but it has not been eliminated. On a daily basis, we still add costs and create debt for our children and the people who will be here in 30 years’ time. Although debt is less than it was eight years ago, we should never forget that it is still significant. Between 2002 and 2014, debt as a proportion of GDP rose in every western democracy in the G7. In some cases, that rise was minimal, but in others it was extremely large. Western democracies have a debt addiction that will be problematic in the long term.
As a country, we have moved from paying £30 billion annually in interest payments to paying nearly £50 billion in recent years, and that will only increase. The problem with paying £50 billion is that some of the conversations that we have here every week—about how much money we should put into the health service, the education system or welfare—would be much easier if we were not spending 8% of our budget on debt repayments to financial institutions elsewhere in the world, just so we can hold money that we spent many years ago and that cannot have any benefit today.
That £50 billion is the equivalent of building a hospital every four days, of employing thousands of nurses, doctors and other people in the public sector, or of significant cuts to income tax. The problem is that if we, as a representative western democracy, do not arrest our continued debt addiction, in 20, 30 or 40 years’ time, the figure will be £75 billion or £80 billion in real terms.
Many people have suggested that extending the remit for independent fiscal watchdogs, as my hon. Friend the Member for Ochil and South Perthshire has proposed, does not work, because it is ultimately impossible to model some of the underlying implications as there is an inevitable political bias in the assumptions that will be utilised to assess the activities, and because they might not be truly independent.
My hon. Friend also talked about the situation in 2014-2015, when the former shadow Chancellor suggested that the Office for Budget Responsibility look at Labour’s manifesto costings, but it did not have the capacity to do that. Those are all interesting points, and probably worthy of debates in themselves, but we have to decide whether we want to improve the quality of debate on financial and economic policies—and I do. The extension of the OBR’s remit would be a positive step in that direction.
Those watchdogs work and are useful, as my hon. Friend showed by talking about the Congressional Budget Office in America and institutions in several other countries around the world. I will point to two examples from Australia, where I have family; I am particularly interested in the political machinations there.
In 2007, the Liberal party, which I would closely ascribe to if I were in Australia, was moving out of office and the centre-left party was coming in under Kevin Rudd. In the heat of that election campaign, there was a big debate between John Howard, the Prime Minister, and Kevin Rudd, who would become Prime Minister, about financial and economic costings. The centre-right Government were trying to splurge to win an unprecedented fifth term in office, so they proposed approximately double the increase in spending that the centre left proposed.
I would naturally support my Liberal friends in Australia, but they were not proposing the right policies at the right time, and in doing so, they were not recognising the challenges of an overheating economy. Australia’s independent watchdog came along and said that the proposals would cause problems, which gave the mantle of economic credibility to the Labor party—something that is rarely done across the world.
Kevin Rudd is not a natural fellow traveller for me, but his biography says that
“barely 10 days out from voting day…we had won the all-important battle for fiscal credibility…the political dividends were reaped not only from a slew of Australian financial and economic commentators but from the international credit rating agencies too. Fitch stated that Australia would retain its AAA credit rating if Labor was elected”.
That is an example of why this kind of policy, and this kind of proposal, is really important.
If we fast-forward to the 2013 Australian election, Kevin Rudd was at the end of his second term as Prime Minister and was seeking to splurge to stay in office. In the white heat of the election campaign, his party put out a number of scare stories about why the incoming coalition Government were going to cut loads of things, cause huge economic problems and really affect the economy—the kind of thing that we hear quite regularly. The Australian published a book called “Triumph and Demise” by Paul Kelly, an eminent journalist in Australia, in which he said:
“In the second-last week of the campaign, the heads of Treasury and Finance issued a statement repudiating Labor’s claims”
on the costings of the coalition—the opposition. He continued:
“It was an unprecedented event, the biggest story of the campaign and a humiliation for Rudd as prime minister. Rudd had over-reached and been repudiated by his own advisers. The symbolism of a dying, dysfunctional and dishonest government was irresistible.”
I would not particularly like to have been in John Howard’s or Kevin Rudd’s shoes, but that demonstrates that if we get structures right and have an independent watchdog that can look and say, “This doesn’t work. This is wrong. These numbers are obscured,” that can improve the quality of debate and focus people on the underlying questions that are being asked.
However, that will only ever be useful if we, as politicians, and the country at large, recognise that statistics are not necessarily the be all and end all, that there is a wider context to be gained from them, and that we need to treat them with caution, as my hon. Friend outlined. But in principle, the extension of the OBR’s remit is extremely important. Although I recognise that there are challenges, if we are looking to take steps to improve the quality of debate—both within this place and without, in the wider community—we should seriously consider ideas such as this, which I welcome strongly.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to serve under your chairmanship, Mr Gray.
I thank the hon. Member for Ochil and South Perthshire (Luke Graham) for securing this debate and the Backbench Business Committee for agreeing to it. I particularly thank the hon. Gentleman because his speech was not terribly partisan but just laid out the facts, which is important, and I will attempt to do the same.
First, I will give a bit of context about the Scottish Fiscal Commission and what it does, so that we are all aware of the situation regarding budgetary scrutiny in Scotland, and then I will talk about some of the things that the hon. Gentleman talked about.
The Scottish Fiscal Commission is structurally and operationally independent of the Scottish Government, and it produces robust forecasts about devolved revenues, spending and onshore GDP. The interesting thing about it is that because it was formed fairly recently, we can talk about how it was formed and the decisions that were made about it. When the Scottish Government proposed it and introduced the Bill to create it, they engaged with MSPs and the proposed commission to ensure that the strongest fiscal commission possible was created. In Scotland, we sought to learn from international experience in designing the legislative proposals, and we reflected on the work of the OECD and the International Monetary Fund.
The proposals for the Scottish Fiscal Commission recognised that there was not a one-size-fits-all model for fiscal councils. I think that is part of what we are discussing now; the debate is not so much about a one-size-fits-all model as about the best possible structure for a fiscal commission, given how the UK operates and how the UK Parliament operates, and about whether the hon. Gentleman’s proposals actually fit with the way our democracy works and make sense for us.
The Bill to create the Scottish Fiscal Commission expressly provided that it would not be subject to the direction or control of any member of the Scottish Government in performing its functions, and it would be directly accountable to the Scottish Parliament. The Bill also gave the commission the full freedom to determine how it scrutinised forecasts, and protected it from any actual or perceived direction or interference from the Government in carrying out that scrutiny. That is really important, and it is part of what we have discussed today, in terms of the genuine separation between the Government and fiscal forecasting. If we are to have what has been said is the position of the Congressional Budget Office and agreement from all parties that the Office for Budget Responsibility is non-partisan, we need that very clear separation; the OBR clearly needs to be an independent body.
It was interesting to hear about the situation in America and Australia in relation to how those countries’ fiscal commissions operate. However, it would be particularly useful—I am always suggesting this when policies or suggestions are put forward—to hear about countries in which these things do not work, so that we would be aware of any potential pitfalls before we make any decisions. It is always useful to consider how things operate differently in different countries—where these commissions work and where they do not work—so that the pros and cons can be assessed before any decision is made about any changes.
Regarding where things are different, it would be useful to look at other fiscal commissions to see whether their scrutiny works. Whatever any organisation does, there is an accusation of bias, and my particular concern about the OBR is that it would be difficult for it to be in a situation where it was not accused of being biased and that it would find it hard to find that middle ground, if you like. Generally, my view is that the right middle ground is when people on both sides are disagreeing with someone or something and saying that they are wrong—if that happens, they have probably found something there. That is certainly the position that most politicians find themselves in. However, it would be difficult for the OBR to prove that it can strike that balance.
Luke Graham
The hon. Lady is making a very valid point. I just want to refer back to my speech, where I looked at some of the results of OBR forecasts. On average, when we take out the one outlier for 2013, the OBR is actually only 0.1% off, and that was the result of it working on a more conservative basis and underestimating growth. So perhaps we can let the facts speak for themselves, which will help to build credibility, both for the OBR and the Scottish Fiscal Commission, which she has mentioned—obviously, they already work together.
Kirsty Blackman
Absolutely. I am definitely not saying that extending the remit of the OBR is impossible; I am just suggesting that it would be a difficult task for the OBR, particularly if it was forecasting on the basis of individual policies, which it has not done to any great extent in the past. That would be a new place for the OBR to prove its worth and to prove it is non-partisan. However, as I say, I do not want to say that that is an impossible task; I am just suggesting that it is a difficult one and that the OBR would probably take time to find its feet in performing it.
Looking at individual policies and their wider impact would be a very good thing to do. We should consider the fact that we have had so many Finance Bills; even in my three years as an MP, the Finance Bills have kept coming and coming. In each of those Finance Bills, there are changes to legislation; sometimes there is new legislation, and sometimes there are changes to legislation. However, I do not feel that we have adequate information about exactly what the full impact of those changes to legislation will be.
For example, in the last few years, the Government have increased insurance premium tax, and there has not been particularly wide-ranging analysis—certainly not independent analysis—of the cost of that change. It is all well and good for the Association of British Insurers to produce a forecast of that cost, but I assume people would argue that such a forecast might be biased. Equally, it is all well and good for the UK Government to produce an analysis, but, again, people would assume that that analysis was biased.
So we have a situation where there is not an independent forecast of exactly what the cost of increasing insurance premium tax will be. If increasing insurance premium tax means that individuals could no longer afford to pay their insurance, might such individuals become homeless, and would the state have to step in to help them? If that happened, there would be an additional cost that was perhaps not accounted for in the Government’s forecast of how much additional revenue would be created. Consequently, looking in-depth at such policies would be very important.
Policies such as the bedroom tax could be considered. In considering the reduction in benefits for individuals who have an additional bedroom, we must ask what the resulting cost of that policy will be. It perhaps saves the Government money, because people will choose to downsize rather than live in properties that are too big for them. Actually, the evidence perhaps bears out that that does not happen nearly as much as the Government predicted it would. People would perhaps also have to move away from their communities and the support mechanisms they have around them, so there would be an additional cost for the state, as it would have to pay for the lack of support structures that those people have around them if they move. There are incredibly wide ramifications with some of the costs of such a change, so it would be good to have an organisation such as the OBR—if it could be proven to be independent in this regard—looking at the wide-ranging impacts of a policy and examining the draft clauses for the Finance Bill later this year.
I think there is a clause in the upcoming Finance Bill—I think it is clause 31 or clause 32—in relation to VAT interest accrual payments. Basically, the Government proposal is that Her Majesty’s Revenue and Customs will no longer pay interest on repayments that it is due to pay to VAT-paying organisations that have overpaid their VAT. I am not clear what the wider ramifications of that will be. Will it cause cash-flow problems for small businesses? I do not know, but for me to be reliant on the Government’s forecast on that issue would cause me some issues, because I would be concerned that the Government’s forecast might be biased.
As I have said already, I am similarly concerned that organisations with a vested interest might have a biased position in this regard. It would be very good to see an unbiased perspective on some of these proposals, particularly, as I mentioned, because of the number of Finance Bills there have been and the number of tweaks they have made to policies. I have yet to see a Finance Bill that has not made changes to benefits in kind for people who have vehicles for their work. Now, in the grand scheme of things, not that many people have vehicles for their work, but the fact that every single Finance Bill tweaks the legislation means that there was something wrong with the legislation in the first place, and it is also difficult for us to consider the potential ramifications, because we are not getting extensive information about these things.
Finally, I just want to highlight another issue. In my intervention earlier, I asked whether the policies the Government have put forward have produced the outcomes the Government said they would. I appreciate the point of view of the hon. Member for Ochil and South Perthshire, and the Public Accounts Committee does a huge amount of work, getting through an incredible amount of information and producing very good reports. Perhaps it is my feeling as an MP that I am not saying to the PAC, “How about you check out this tax relief and whether it has had the impact the Government said it would.” With some of the tax reliefs that have come through in the past, I have asked the Treasury, “Can you tell me whether this tax relief has made the saving, or had the additional cost, you suggested it would?” Generally, it comes back with, “Oh yes, we keep all reliefs under regular review,” but it does not provide me with the tangible information I would like so that I can be assured that the position the Government took, and the case they made, were the correct ones, so that, if they make a similar case in the future, we can agree or disagree with it. That is really important.
I still think there is an issue with the information the Government provide to the OBR, regarding not just the post-situation, after policies comes through, but before they come through. I want to read some statements from the OBR’s 2017 “Economic and fiscal outlook” and elsewhere:
“We asked the Government if it wished to provide any additional information on its current policies in respect of Brexit…it directed us to the Prime Minister’s Florence speech from September and a white paper on trade policy published in February.”
About the Brexit negotiations, it said:
“we still have no meaningful basis on which to form a judgment as to their final outcome and upon which we can then condition our forecast.”
It is all well and good to argue for the OBR to have a wider remit, and I am not opposed to the idea—it is interesting, and we should explore it further to see how it might work—but the OBR can make good forecasts only if it is provided with good information from the UK Government. I get that the UK Government have very much struggled to convince all their MPs to support any proposal on Brexit, but if the OBR had the flexibility to say, “This would be the fiscal outcome if the Government chose this path, and this would be the outcome if they chose this other path,” that would help parliamentarians make the correct decisions about how to go forward.
I was shocked when I read that 2017 Office for Budget Responsibility “Economic and fiscal outlook”, and as soon as I heard about this debate, I immediately thought of those words. It was as if the OBR was having to act with one hand tied behind its back, regarding forecasting. Whatever the situation, and whether or not the OBR is further reformed to look at specific policies—I am not opposed to that—we must ensure that the quality of information that the UK Government provide to the OBR to make good forecasts is better. They should provide as much information as possible, and if they cannot provide information on their policies, they should ensure that the OBR has the flexibility to make forecasts on two, or three, potential outcomes, so that parliamentarians, during the Budget, or any spending process, can make better decisions.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve with you in the Chair, Mr Gray. I thank the hon. Member for Ochil and South Perthshire (Luke Graham) for securing the debate, as well as the Backbench Business Committee.
I am delighted that we are talking about the remit of the Office for Budget Responsibility. I strongly agree with the hon. Member for North East Derbyshire (Lee Rowley) that it is an important issue. I regret that we do not have many Members thronging the Chamber; the last time but one I was here was for the debate about safe standing for football grounds, and it is a shame that we do not have the huge numbers we had then. It is incredibly important to talk about the robustness of figures when it comes to budgeting. I have to say, if you will permit me, Mr Gray, that it is also a delight for me to be able to talk about Labour’s manifesto and spending plans. It feels like summer has come slightly early for the Labour party—perhaps not quite as early as the Prime Minister had hoped. Still, I am pleased to be able to cover those subjects, but I will do so briefly, Chair, so as not to strain the patience of those in the Chamber.
Labour, of course, supports the OBR. We have had a good summary and discussion here of its origins and its work, and Members have usefully referred to how it follows on from similar independent fiscal institutions in other countries, not least those in the Netherlands and the US. The hon. Member for Strangford (Jim Shannon), who is no longer in his place, rightly mentioned the significant expertise we have in our OBR, how it compares favourably with other parts of Government and how we need to ensure that we support the people who work there. I very much want to pay tribute to all their hard work.
The OBR’s analysis, particularly in recently years, has been enormously helpful, especially in performing the task—referred to briefly by some Members—of having a long-term perspective on Government spending and its potential impact on economic sustainability. Of course, it was the OBR that pointed out, at the time of the last spring statement, how projections for both GDP and productivity and investment growth are set to be lower than anticipated, thus counteracting, perhaps, some of the media coverage that has suggested that as a country we are out of the woods in some way. On the long-range issues, the OBR has suggested that much work needs to be done if we are to get our economy on to a more sustainable basis. I very much agree with the hon. Member for Ochil and South Perthshire’s praise for the OBR’s accuracy in that regard, even though the office sometimes has negative, or at least concerning, lessons to impart about the long-term economic sustainability of our country.
The OBR has been unafraid to speak some perhaps uncomfortable truths when necessary. There was much discussion of its role around the time of the last Budget, when the new stamp duty holiday policy was being introduced. The OBR was concerned to look at its potential impact on house prices. It was criticised for doing so, but it was absolutely right that it did.
The hon. Member for North East Derbyshire helpfully mentioned some of the trade-offs involved in policy making and suggested that we need more of a focus on those, particularly when assessing the economic impact of Government policies. I strongly agree that that issue needs to be much more explicit. We need a far better quality of debate in that regard, and the hon. Member for Aberdeen North (Kirsty Blackman) gave us some very good examples of where short-term savings appear to have been made in Government budgets but have long-term impacts, often not for central Government but for local government. In practice, debt has been transferred over recent central Governments to local governments, foundation trusts and other bodies. In many cases, the debt has not gone away; it is just in a different place, and we need a greater focus on that.
Above all, we need a far greater focus on our long-term productivity problems and the OBR has played an important part in encouraging evidence-based debate on the topic. In the long run, if we do not deal with our investment gap, which in Britain is far larger than in many comparable countries—our investment has not gone back to pre-crisis levels at the same speed as elsewhere—we will not have the capacity to raise sufficient Government revenue in the future. We have to deal with those issues quickly, and bodies such as the OBR help us to do that and perhaps to move beyond some of the sterile debates about making short-term savings that do not promote long-term sustainability.
Labour is such a strong supporter of the OBR that we agree with the hon. Member for Ochil and South Perthshire about an extended remit. The OBR has helpfully raised the salience of long-term challenges for the UK’s public finances due to demographic change—something the hon. Member for Henley (John Howell) usefully mentioned—but Labour Members feel that it could have a more expansive role when it comes to a long-term threat that is not sufficiently considered by the Government, that of climate change and environmental degradation, to which many experts, not least Lord Stern, have drawn attention. We ask the OBR to report in particular on the fiscal risks of climate change, which could include the impact of raised food costs, the costs of flooding, and lost productivity caused by extreme weather events.
The current Government may be sanguine about lost revenue; we saw just last week another Treasury Minister talking about the potential trade-offs between being able to move goods across borders in the event of a no-deal Brexit and potentially losing revenue by not being able to collect VAT. No study has been done on the potential impact of that. We have had nothing from the Government that spells that out, but we should have. We need transparency on such issues and on the short and long-term risks to the public finances, particularly in relation to, as I said, environmental damage.
Widening the OBR’s remit would go with the grain of developments in many other countries. The hon. Member for Aberdeen North rightly referred to the fact that we always need to look at international examples. She helpfully referred to some of the thinking that was done about the Scottish Fiscal Commission; other Members referred to that as well. I agree with her that negative lessons can often be particularly important—learning from what has not worked as well as what has. Certainly we can learn from the EU’s fiscal forecast and the countries that look more expansively at environmental matters.
Adding more of a focus on environmental matters to the OBR’s remit would go with the grain of what the Bank of England has been doing by incorporating a consideration of banks’ exposure to climate change-related risks and stranded assets as it regulates banks. It would echo the approach of many long-term investors who are increasingly considering environmental matters when it comes to assessing the promise of different investment opportunities. The OBR would probably be willing and happy to do something that would usefully build on its existing activity.
We also want to strengthen the independence of the OBR, requiring it to report to Parliament rather than merely to the Executive, as was helpfully mentioned by the hon. Member for Ochil and South Perthshire. That is the approach of the CBO in the US, and it could be usefully adopted here. It is not unusual for an independent fiscal institution to report to the legislature rather than the Executive, and it would aid the OBR to show that it is a truly independent evidence-based body that can have a real impact on policy making. It might also then lead to a greater salience of its reports at a political level and at the level of public discourse and debate as well, which would be a good thing.
There are many other areas where we need more data and analysis to truly assess the impact of economic decision making. One area that has come up frequently in recent Budgets concerns the lack of distributional analysis of Government economic decisions. I am pleased to see support for that from the hon. Members for Ochil and South Perthshire and for North East Derbyshire, who are nodding. The Department for Work and Pensions carries out such analyses frequently. The Treasury appears to do such analyses, but it does not report them publicly very often, which is a problem. The Government have a duty under the public sector equality duty to consider how their decisions affect people with protected characteristics, but at the time of a Budget, for example, we do not have that analysis in front of us, so we cannot examine the impact of policies on different groups, and it is very difficult for members of the public to assess the impact on them.
Recent policies have had very different impacts on different groups of people. If we look at changes to social security, the incomes of lone parents, particularly black and minority ethnic lone parents, have dropped substantially by up to around £9,000 in some cases, and that has not been made clear from Treasury analyses before Budgets. It is important to have a clearer handle on such impacts at the time when we actually vote on such measures.
On the point about greater evidence and analysis before economic decision making, the hon. Member for Aberdeen North rightly referred to the need for greater post hoc evaluation of economic decisions. She referred to the case of tax reliefs, which is something that I have worked on for some time. We rarely have post hoc evaluation of the impact of tax reliefs in the UK, which contrasts with the situation in many other countries. India has an annex to the Government Budget that covers tax reliefs, but we do not have that in the UK. There is a real contrast with how we assess spending decisions in terms of direct spending programmes as against foregone income in the form of tax expenditure. There is a huge gulf there and we need to deal with that. The OBR could play a part in that, and we should think about that for the future.
The Labour party’s position remains that the core role of the OBR should be to scrutinise the Government’s fiscal and economic plans, but it should do so in a more expansive and open manner than previously, as I have explained. An extension of its remit to cover party manifesto pledges might be warranted, but if it occurs it must be in concert with an extended remit to examine governmental spending commitments and it must be adequately resourced to enable it to fulfil that task. I am aware of the Dutch example that the hon. Member for Ochil and South Perthshire referred to. I was pleased to see him inter alia praising the role of trade unions in decision making, which was slightly unexpected but good to hear. We can usefully learn from the Dutch example and the extended remit to look at Government spending plans. We had an interesting discussion about the Australian situation that the hon. Member for North East Derbyshire mentioned.
The hon. Member for Ochil and South Perthshire referred to the CBO and its more extensive role in ongoing policy making—not just at Budget time; it looks at discrete policies on an ongoing basis. Before we talk about potentially extending the OBR’s remit in that manner, it is important to focus on the activities of the Treasury first. In many cases the Treasury should carry out analyses, anyway. There is the question of independence; I do not take that for granted. But in many policy areas we do not even get to the level of understanding what the Treasury analysis is, let alone then having that independent analysis as a guarantor.
I do not agree with the hon. Member for Aberdeen North on everything, but I did agree with her on Brexit. Internal analysis has been conducted within the Treasury, but it has been like trying to get blood out of a stone to allow Members, let alone the public, to see that analysis. If the Treasury were a little more open about its processes, we would be in a different situation and we could then consider whether there should be additional independent analysis, but let us have more open analysis from the Treasury first.
Some Members referred to Labour’s spending plans. I regret that the hon. Member for North East Derbyshire tried to wriggle out of my question about where his party’s spending plans were set out in pounds and pence. He spoke elegantly and eloquently, but he managed to wriggle out of it because his party failed to include any costings anywhere in its manifesto at the general election. As my right hon. Friend the Member for Hayes and Harlington (John McDonnell) has commented, the only numbers in the Conservative manifesto that we have been able to see are the page numbers. We have seen nothing about how different approaches to spending would be carried out. We have seen a similar approach continuing in Government. The huge elephant in the room in this discussion concerns plans for NHS spending. A commitment has been made to a huge boost to NHS spending, but we have no idea where the additional funding will come from. Initially there was a suggestion that it would come from a so-called Brexit dividend, but it does not appear from the current approach to Brexit that there will be any such dividend. We heard whispers about where the funding will come from, but they are just whispers.
Anneliese Dodds
In the context of the OBR, the problem is that we have just heard from some Members that the OBR’s remit should be extended to cover party political manifestos, and we have the Government making a huge spending commitment during its period in office, and yet no details have been provided for how the spending will arise. Many public servants are reading the tea leaves, not least those in the police, and assuming that the spending will come from cuts elsewhere. They are probably not wrong to do so.
Some Members referred to the discussion of Labour’s spending plans at the general election. It was possible to have that discussion because Labour had set out its spending plans in our grey book. I can see the hon. Member for North East Derbyshire smiling. He will smile even more when I provide him with some summer reading: Labour’s grey book, “Funding Britain’s Future”. It is very simple to read. I am sure other Members who are former accountants will find its layout very simple because it sets out on one side where more revenue will be derived and on the other side where expenditure will go. It is enormously simple to understand.
James Gray (in the Chair)
To intervene only about the OBR, I call Luke Graham.
Luke Graham
I look forward to that interesting summer read. Hopefully the hon. Lady will support my proposition that those figures would have even more credibility if an independent body could check them to ensure that the assumptions and figures featured in that document are credible, real figures and not socialist fantasy.
James Gray (in the Chair)
To speak only about the OBR, I call Anneliese Dodds.
Anneliese Dodds
I absolutely will, Mr Gray. The hon. Gentleman suggested that the OBR’s remit could be extended to look at such figures. As I said, Labour is not against that. We might be interested in looking at that, but the figures have to be provided in the first place. Sadly that was not the case for his party at the last general election. I humbly suggest that as a first step towards that outcome, his party might follow mine and set out some of its spending. That would mean that we could have a discussion with other independent bodies in advance of an election, as occurred with Labour’s spending plans.
We had a useful, productive discussion with the Institute for Fiscal Studies, which looked into our assumptions. There were differences of view in relation to some areas of spending. For example, Labour suggested that it should not be assumed that removing the pay cap, which is something that we have committed to do for public sector workers, will be only a cost, because revenue would be positively affected by the additional national insurance that would arise from slightly higher wages. The IFS does not take that into account, so we had different assumptions on that. However, Labour wants to have that debate and discussion. To do that, we need to have the figures out there in the first place.
I thank the hon. Member for Ochil and South Perthshire again for securing the debate. I also thank all those in the Chamber and, particularly, those who work so hard for the OBR to ensure that we have an independent, unbiased assessment of our public finances. Finally, I wish everyone a very enjoyable summer.
James Gray (in the Chair)
Before I call the Minister, may I clarify something that has been worrying me throughout the debate? When I was brought up in the foothills, I remember those hills being called the “Ochils” as in “ochre”, rather than the “Ochils” as in “Och aye the noo”. Perhaps the hon. Member for Ochil and South Perthshire (Luke Graham), who led the debate, will clarify precisely how we pronounce the name of his constituency.
The Exchequer Secretary to the Treasury (Robert Jenrick)
It is a pleasure to serve under your chairmanship, Mr Gray, and I thank my hon. Friend the Member for Ochil and South Perthshire (Luke Graham) for securing the debate. There are few issues on which I would like to end the parliamentary term more than the remit of the Office for Budget Responsibility. As we have heard from Members on both sides of the House, there is widespread agreement that the credibility of our fiscal framework matters and that the quality of our national debate on economics is extremely important—not just to the economy and the country, but to the sustainability of our democracy.
The Government are proud to have established the Office for Budget Responsibility in 2010. On behalf of the Treasury, I thank—as my hon. Friend did—its staff, its first chairman, Sir Alan Budd, and of course Robert Chote, who has taken the organisation forward since. Were he listening to the debate, as I am sure he is, he would take heart from the fact that hon. Members on both sides of the House have praised the organisation that he leads and agreed that it has managed, in a relatively short time, to establish itself as a credible and independent organisation. I hope that that continues in the years ahead under his leadership and that of whoever succeeds him.
We created the OBR in the context of the fiscal disaster that was the last Labour Government, as part of our mission to restore credibility to the public finances. Since 2010, we have gone a long way to turn things around, reducing the deficit by three quarters and reaching the point where our debt will begin to fall this year, but I do not begin to claim that we have reached the end of the story.
There is a great deal more to do, and, as we heard eloquently from my hon. Friend the Member for North East Derbyshire (Lee Rowley), we are still paying, as a country, £50 billion a year in interest payments. That fact alone demonstrates the importance of the OBR and of improving the quality of economic debate in this country. As my hon. Friend rightly pointed out, all democracies in the west have suffered in recent years from politicians over-promising at election times and at other moments. We need to ensure that we have fiscal credibility as a country to sustain our democracy.
We created the OBR specifically as an independent institution responsible for examining the sustainability of the public finances and ensuring that the UK maintain its credibility—something that was clearly in doubt back in 2010.
Anneliese Dodds
May I briefly ask whether the British economy was growing when Labour left office?
Robert Jenrick
The British economy had just suffered a severe recession, and we inherited the largest peacetime deficit since the end of the second world war. Nothing exemplifies the situation with the public finances more than the note that was left on the desk in the Treasury office down the road saying that there was no money left.
The OBR produces the official economic and fiscal forecasts for the UK. It does not cost Government policies, but scrutinises and certifies costings initially prepared by the Treasury and other Departments to estimate their impact. That is an important point, to which I will return in a few moments. The OBR also provides detailed public reports, including the fiscal risk report every two years, which we have heard about, and the fiscal sustainability report, which was published last week and which keeps us at the frontier of fiscal management internationally and demonstrates our commitment to fiscal transparency and accountability. I am pleased that, as we heard in the debate, Scotland has followed suit and, since 2014, the role of the Scottish Fiscal Commission has been strengthening. That institution is in its relative infancy, but it appears to be building credibility and working to help keep Scottish finances in check.
The OBR has won international acclaim. Earlier this year, Kevin Page, in a paper for the Centre for Economic Policy Research, said:
“The OBR’s commitment to transparency is likely the gold standard in the IFI community.”
He added:
“The OBR deserves to be considered a leader among”
independent fiscal institutions
“for the transparency of its work and the credibility it derives”,
as we have heard from hon. Members. Protecting that credibility should be as much a priority for Parliament as it is for Government.
Since 2010, there have been a number of calls to expand the OBR’s remit, including proposals, as we have heard today, to report on distributional analysis, performance against child poverty targets, environmental matters and living standards. Each has merits, and deserves discussion and further thought. The OBR was deliberately set up to report on the sustainability of the public finances, and to date that is where we have let the matter settle. Asking the OBR to expand into areas beyond its core expertise and experience carries with it risks to its credibility. We need to consider that carefully before taking any such steps.
The OBR has also been called on to produce costings of policy proposals for Opposition parties. Again, we have heard about that today, and it has been raised by successive shadow Chancellors, including Ed Balls before the 2015 general election. Respected institutions such as the Institute for Fiscal Studies already perform that function well, and we should bear that in mind as we consider such proposals. As we heard from my hon. Friend the Member for Ochil and South Perthshire, the IFS recently exposed the folly of some of Labour’s proposed tax increases.
Robert Jenrick
The hon. Lady shakes her head, but the IFS said that those would lead to taxes being raised to their highest in peacetime history. The IFS also questioned whether they would raise as much as the shadow Chancellor claimed, and said that they would hit working families hardest. We do not always need to rely on the OBR to twist the knife, as the IFS has certainly done so repeatedly.
Anneliese Dodds
May I respectfully ask how exactly the IFS was able to analyse the Conservative party’s policies, when there was no indication in its manifesto of how any of them would be funded? It appears slightly peculiar to pick on the small number of criticisms made by the IFS of some elements of Labour’s assumptions when no information whatever was provided by the Minister’s party.
Robert Jenrick
I would not characterise the IFS’s criticisms of the Labour party’s manifesto as “small”. They were pretty fundamental; the remarks I have just described speak for themselves. The IFS did analyse the policies of the Conservative party in the lead-up to the last manifesto, but let us stick to the question before us today, and apologies to you, Mr Gray, for deviating from it.
A number of arguments have been made today for widening the remit of the OBR. Over previous years, such arguments have been looked at in some detail. Back in 2014, Robert Chote wrote in response to Andrew Tyrie, now Lord Tyrie, who at the time was Chair of the Treasury Committee, setting out his views on the matter. He said that, while some of those arguments undoubtedly had merit and deserved proper consideration by the Government and by Parliament, it was important that we consider
“the significant practical issues that would need to be addressed”.
Let me briefly set out some of those, which we would all need to consider.
My hon. Friend the Member for Ochil and South Perthshire referred to the US Congressional Budget Office. That is a good comparison, although the US system varies from our ours in a number of ways—in particular, Congressmen, Congresswomen and Senators have a much greater ability than Members of the House to initiate legislation that carries with it significant financial implications. However, it is worth considering the remit of the CBO, and its capacity.
The CBO undertakes analytical work in-house and has around 235 members of staff, with an annual budget of around $50 million. In comparison, the Office for Budget Responsibility has just 27 members of staff and costs us around £2.5 million. The OBR is clearly dwarfed in comparison. Although that is not in itself a reason not to proceed, we would have to consider the financial consequences of doing so.
The CBO is required by law to produce cost estimates for nearly every Bill approved by a full budget committee of either the House or the Senate, and produced 740 such formal costings last year, so a significant amount of work would be required. It is worth pointing out that the CBO does not—this is perhaps a more relevant comparison for some of the issues we have discussed this morning—evaluate the costings of candidates for Congress, or indeed of presidential candidates. Clearly, to increase the remit of the OBR would require it to have a significantly larger operation.
Undertaking Opposition costings as part of the parliamentary process would have important implications for the OBR and departmental resources in all Departments, including the Treasury, but the greatest impact would be felt were it to be involved in manifesto costings. The time that the OBR and Departments needed to produce costings would pose very particular difficulties during general elections, some of which are unplanned. It is difficult to see how parties could be afforded the customary flexibility in developing their manifestos until a relatively late stage in the election process, to reflect the public debate in the run-up to the election. Instead, they might have to submit detailed proposals two or three months ahead of a general election. Of course, we could consider that, but we would have to consider carefully the implications for the general election process and the way we have traditionally approached that.
The policies in scope for OBR costings also differ in type from the policies that have dominated the political debate. The detailed costing process at fiscal events covers only tax and welfare policies, which are clearly very important and a significant element of general elections, but are not all the issues reflected in a general election or all the policies in manifestos.
The other point to note is that the OBR does not produce the work in-house. It relies on detailed data produced for it by Departments, including the Treasury, which are then submitted to the OBR for scrutiny and analysis. As the hon. Member for Aberdeen North (Kirsty Blackman) said, the quality of the information is extremely important. Civil servants in Departments would be required to work through political parties’ manifestos and then provide high-quality approved data to the OBR, with which it could do its usual costings.
Kirsty Blackman
I do not think that the problems the Minister raises are insurmountable; they could be overcome. A concern that I perhaps should have mentioned in my speech is how the OBR decides which policies it will look at, and which it will not. It could be accused of bias if it looked only at Labour party policies, for example, and not very many Conservative party polices. If the OBR were to be expanded, I would like to see a public consultation on what its expanded remit should be and which policies it should therefore look at.
Robert Jenrick
Were the OBR to see its remit extended, that would be a matter for Parliament. It would be debated extensively within Parliament.
To finish my point on civil servants, there is an important matter of principle here. Civil servants would have to undertake detailed costings and provide data on Opposition policies—we should all acknowledge that that would represent a significant constitutional development for the UK. We would have to be willing to do that in the knowledge of its consequences.
To answer other points raised in the debate, the OBR does, to some extent, look at the effectiveness of policies. For example, it re-costs policies at each fiscal event, and it looks again at tax policies that arose in previous fiscal events at each subsequent Budget. It does not evaluate the individual effectiveness of the policy, but evaluates only its fiscal consequences, although the National Audit Office and the Public Accounts Committee, as well as Select Committees, have the ability to do that—and do so, very well.
The hon. Member for Oxford East (Anneliese Dodds) raised a point about the OBR’s remit with regard to the environment. The Government are interested in how we can ensure that the Treasury takes account of climate change and other important factors. One example of our action is commissioning Professor Dieter Helm to carry out an important review for us and to take forward the idea, still in its infancy, of how we as a country could create natural capital accounts. We are very keen to work that through in the coming years.
This has been a helpful debate. It is important for Parliament to review the OBR at this moment. We have conducted two internal reviews in the Treasury, both of which concluded that the remit is sufficient. We do not intend to change it at present, but it has been helpful to hear views from a number of Members and we will of course give careful consideration to those views in the future.
Luke Graham
I thank all colleagues for joining me to take part in this important debate. I take to heart some of the comments made by my hon. Friend the Member for North East Derbyshire (Lee Rowley), and the hon. Members for Aberdeen North (Kirsty Blackman) and for Oxford East (Anneliese Dodds).
We have seen that the performance of the OBR is not in dispute. It has established itself as an independent and credible body for scrutinising Government expenditure plans. The Minister referred to points made in the debate and said that, at the moment, the Government have no plans to take forward any proposal to expand the OBR’s remit. Any proposal has to be matched by political will. My purpose in introducing the debate was to raise some questions and shine some light on an area of policy that is perhaps a little less sexy than some others that get debated in the House of Commons.
I certainly hope that our next debate will be much better attended. As the Minister mentioned, the measures could be good things in themselves. They would cost more and require more resourcing, but if that were to lead to more informed debate and better law-making, that is a cost that the House and our constituents would be more than willing to pay.
Question put and agreed to.
Resolved,
That this House has considered the remit of the Office for Budget Responsibility.