King’s Speech (4th Day)

Baroness Noakes Excerpts

Monday 22nd July 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, in 2010 the outgoing Chief Secretary to the Treasury left a note for his successor saying there was no more money. Despite the massive challenges of the pandemic and the energy shock, we left office this month with a strong pound, low unemployment, on-target inflation and a growing economy. The Government now seem desperate to craft a disaster inheritance narrative, but it will not fool us and I hope that it will not fool the British people.

I want to focus on just two aspects of the gracious Speech: the changes to the Office for Budget Responsibility and the proposed national wealth fund, which will be based on the existing UK Infrastructure Bank and the British Business Bank. These bodies are part of a pattern of state bodies with considerable powers and considerable operational independence but weak accountability. The gracious Speech shows that the Government are planning many more public bodies. We can disagree on whether a large state is a good or a bad thing, but we ought to agree that effective parliamentary accountability is a good thing and an essential part of the total equation. I hope that the Government will commit to that as they bring forward their legislation.

The Government’s OBR Bill will give it more power to issue forecasts. At one level, this is just a bit of political pantomime designed to squeeze every last drop out of the fiscal drama of the Truss Administration. As ever, truth is the casualty in politics. The Bank of England’s culpability, not least in its negligent handling of the risks embedded in LDI strategies, has been forgotten because it does not fit the political narrative.

More substantively, the OBR is not particularly good at forecasting, as my noble friend Lord Forsyth pointed out. Its last appraisal of its own forecasting record was that it consistently overestimated economic growth and underestimated public debt. It has been no better at inflation forecasting than the Bank of England. The Government would have been wise to have sorted out the OBR’s core functions before granting additional powers.

The Government, with their worthy commitment to growth, will also discover that the OBR’s static, rather than dynamic, approach to modelling can be a constraint. The Chancellor’s pro-growth policies may not score fully in the OBR’s modelling, which will in turn constrain what her fiscal rules allow her to do. The Chancellor will then discover that the OBR calls the shots and, like all these independent public bodies, she cannot even get rid of the people until their terms of office expire.

My other topic is the national wealth fund, on which we have very little hard detail. The one thing that is clear is that it is not a wealth fund as commonly understood. It is miniscule by global standards, but more importantly it is not a focus for the investment of surplus national resources to maximise long-term financial returns.

Leaving aside the fact that we have no surplus financial resources at the moment, this fund will not be a long-term wealth maximiser if it is built on the foundations of the UK Infrastructure Bank and the British Business Bank, which incidentally are not banks as commonly understood. Those organisations are basically a home for the risks that the private sector does not want to take. The chorus of approval from the financial services industry for the national wealth fund was unsurprising; they could see a world of lower-risk investment and lending opening up. There is nothing wrong with taking risks if they are well managed, but high risks should be matched with high returns, and the financial objectives of the existing so-called banks are a long way from that. Indeed, both of them made losses in their last published accounts.

I will have a lot of questions on the national wealth fund when we eventually see the legislation, but today I ask the Minister, who I welcome to his new role at the Treasury, just one, building on a point made by the noble Lord, Lord Vaux. Will the activities of the national wealth fund be subject to the additionality principle? If not, how will the Government ensure that they crowd in private investment rather than crowding it out?