Charter for Budget Responsibility and Welfare Cap

Baroness Winterton of Doncaster Excerpts

Monday 10th January 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I beg to move,

That the Charter for Budget Responsibility: Autumn 2021 update, which was laid before this House on 5 January, be approved.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this we will take the following motion:

That the level of the welfare cap, as specified in the Autumn Budget and Spending Review 2021, which was laid before this House on 27 October 2021, be approved.

[Mr Clarke]

The charter for budget responsibility is, at its core, about fiscal responsibility. Its existence is born of the belief that stable public finances are the foundation for building a stronger economy for the whole country. Its purpose is to set out the Government’s approach to managing the nation’s finances openly so that the British people know that their money is being handled carefully and to give us a credible framework for action, underpinned by the Office for Budget Responsibility, which the OECD remarked is considered by many as a “model independent fiscal institution”.

Given the challenges that we currently face, hon. Members may reasonably ask whether this is the appropriate time for such a debate, but the credibility of the Government’s fiscal plan is what has allowed us to act as we have and will allow us to act again if we need to. In other words, we are updating the charter not simply for the sake of it, but to maintain what the Chancellor called at the Budget

“the path of discipline and responsibility”.—[Official Report, 27 October 2021; Vol. 702, c. 275.]

Almost two years ago, in the face of the pandemic, we took bold and decisive action to commit unprecedented amounts of public money to support jobs and businesses across the UK. That, including the support recently announced in response to the omicron variant, has helped to prevent long-term scarring to the British economy. The International Monetary Fund praised our

“impressive, coordinated, and extended policy response”,

while the OBR said that the costs of inaction would have been far higher.

The Government are proud of the decisions that we have taken, and that we continue to take, but we are not complacent. The pandemic has left us with the highest level of borrowing since the second world war and, at nearly 100% of GDP, public debt will reach its highest level since the early 1960s. That is clearly not sustainable over the long term.

It is important to keep debt under control for three key reasons. First, our level of debt means that we are more vulnerable to changes of interest rates and to inflation. In fact, OBR analysis from July found that our sensitivity of debt interest spending to changes in interest rates is almost twice what it was before the pandemic. A single percentage point increase in interest rates and inflation would increase annual spending on debt interests by over £20 billion in 2024-25, which is more than the entire Home Office budget for that year.