King’s Speech (4th Day)

Lord Eatwell Excerpts

Monday 22nd July 2024 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, as we learned from the gracious Speech, Labour’s plan for growth will be buttressed by the new Budget Responsibility Bill, ensuring that all significant tax and spending changes are subject to an independent assessment by the Office for Budget Responsibility. This poses an important question. The OBR was a child of austerity, a central actor in the disastrous austerity programme. How can an institution designed to validate austerity be part of a programme for growth?

In the uncertain world of economic policy-making the OBR is an important source of challenge to Treasury presumption, but far more important will be the design of the OBR’s own economic modelling and the consequent assessment criteria that it deploys. At its birth, this child of austerity focused on one number, the annual fiscal deficit. Whether £1 million of increased spending was designed to cut top-rate taxes or to fund investment in new infrastructure was irrelevant. That approach can be no part of a growth programme. It is bad economics because not all government spending is the same. Government spending may redistribute income, cutting taxes or raising pensions; it can be an investment in the nation’s productive capacity—spending on skills, for example—or it can be used to buy productive assets, acquiring equity in new technologies and industries.

The Chancellor stressed the economic importance of these distinctions in her Mais Lecture when she said that

“our fiscal rules differ from the government’s. Their borrowing rule, which targets the overall deficit rather than the current deficit, creates a clear incentive to cut investment … I reject that approach”.

She also said:

“I will also ask the OBR to report on the long-term impact of capital spending decisions … I will report on wider measures of public sector assets and liabilities … showing how the health of the public balance sheet is bolstered by good investment decisions”.


What would be the practical impact of this new approach on the OBR’s policing of the fiscal lock? Let us consider the practical example of Sure Start. In 2011, it was costing something over £2.5 billion in today’s money. Under the then OBR assessment, this was a cost that had to be cut. Yet an IFS study published just in April demonstrated that the benefits of Sure Start significantly exceeded the costs. The result of demolishing it has been a higher deficit and higher debt. When he sums up, will the Minister explain how the new rules of the fiscal lock, as set out in the Mais Lecture, would have been applied in the case of Sure Start?

A further blatant failing in recent OBR reports was the acceptance of the Treasury’s own numbers on future public spending, even if they were, as the chair of the OBR commented, “not even fiction”. These fantasy figures were the source of the conspiracy of silence—much referred to but little debated—during the general election. OBR assessments and the fiscal rules cannot be a meaningful source of stability if they are based on such fictions. Will the Minister tell the House what steps the Government are taking to ensure that the spending plans implicit in any OBR assessment are themselves evaluated against objective criteria?

The austerity-era fiscal rules that the OBR was obliged to apply constrained investment and stunted growth. The new fiscal rules, heralded in the Mais Lecture, prioritise growth and seek to minimise debt by maximising GDP. The OBR, austerity’s child but transformed by our Labour Chancellor into a vigorous and dynamic adult, provides the bedrock of stability for Labour’s growth strategy.