Budget Responsibility Bill

Baroness Wheatcroft Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Baroness Wheatcroft (CB)]

My Lords, I welcome this Bill, short though it may be. We have already heard different views of the Liz Truss mini-Budget. I would merely say that it does seem advisable to try to thwart cavalier, determined efforts to avoid scrutiny by the OBR; it makes one slightly suspicious. However, the OBR can only be as effective as the information with which it is provided. It should be a cause of concern that the OBR chairman, Richard Hughes, has intimated that he was not kept fully in the picture towards the end of the previous Administration. We need to be very wary about a repeat of that.

I believe the whole basis of government accounting is flawed. It focuses solely on the short term, to the detriment of the country’s longer-term interests. Take the current controversy over the winter fuel payment. I will not enter into the rights and wrongs of that decision—we have already heard about those today, and will hear a lot more—although it seems to be a very costly exercise in terms of political capital, for very little financial gain.

However, the £22 billion black hole that we keep hearing about that the Government intend to fill, in part with the proceeds of cutting the winter fuel allowance, is actually more of a bottomless pit, for a major contributor to that £22 billion is the pay rise for public sector workers. That pay rise brings with it huge ongoing costs that do not feature because public sector pensions are not provided for. That is a massive obligation which is simply swept under government carpets. According to the whole of government accounts, public service pensions are the largest single liability on the Government’s balance sheet. In 2021-22 they were calculated at £2.6 trillion—greater than the national debt.

The idiocy of this system of accounting was highlighted in a recent article by John Crompton, a former investment banker who has also done three stints at the Treasury. He suggests that the latest public sector pay awards, cited as contributing £9.4 billion to that black hole, could also bring unfunded liabilities of between £3.5 billion and £4 billion every year. Crompton calls this treatment of government liabilities “downright misleading”, and I am afraid it is. The short-term saving from cuts such as the winter fuel allowance will be wiped out year after year by numbers that do not appear in the accounting at superficial levels.

So, while I welcome the Bill as a minor improvement, I ask the Minister whether he agrees that the time has come for a much more radical rethink of government accounting. Yes, cash flow is important, but, as every household knows, concentrating solely on income and expenditure is not the way to build a healthy economy. Major infrastructure projects, such as those cited by the noble Lord, Lord Eatwell, are essential. Cancelling them because of a short-term need to cut expenditure, as this Government have done, may be foolhardy. A proper net worth finances method of accounting, dealing with government expenditure over the longer term, would enable a much more effective long-term view to be taken of the costs and benefits of investment. A change to a more sensible fiscal framework would make for much healthier, better management of public finances, and it would contribute to the growth that we absolutely need.

The Minister explained that the Government have three aims as far as the Bill and the economy are concerned: stability, investment and reform. I ask him to really be serious about reform.