Budget Responsibility Bill

Debate between Stella Creasy and Gareth Davies

2nd reading
Tuesday 30th July 2024 Commons Chamber

[Gareth Davies (Grantham and Bourne) (Con)]

Madam Deputy Speaker, congratulations on your election. Let me take my first opportunity to congratulate the right hon. and hon. Members in the new Treasury ministerial team, who have taken up some of the best jobs in government. I loved every minute of my time in the Treasury, even when I had to come to this place to face my shadows. I will always be grateful to the officials who so ably supported me and the team.

As the Member of Parliament for Grantham, the home of our country’s first female Prime Minister, I congratulate our country’s first female Chancellor. It is right that we highlight that. While the two are not politically aligned, we can all recognise when a ceiling has been shattered and no matter who is breaking it, we certainly recognise that on this side of the House.

The Bill before us seeks to amend the Budget Responsibility and National Audit Act 2011—a Bill, introduced by a Conservative Chancellor, that created the Office for Budget Responsibility. The Bill should be understood in that context, building on a previous Bill that replaced the system where His Majesty’s Treasury would produce its own forecasts and the Chancellor of the Exchequer would essentially mark their own homework. Back then, that was an essential piece of legislation, given what had gone on before. Between 2000 and 2010 the then Labour Government’s so-called forecasts for growth in the economy were out by an average of £13 billion and their forecasts for the budget deficit three years ahead were out by an average of £40 billion. Their forecasts therefore lacked any credibility at all.

It was not just their forecasts that led to the creation of the OBR; it was their management of the economy. Much has already been said by the shadow Chancellor about the higher inflation, higher deficit and higher unemployment that the Conservatives inherited from Labour in 2010. What is, however, sometimes forgotten is that total public spending accounted for almost half the national income when Labour last left office. Welfare spending ballooned by a staggering 45%, and that runaway spending meant that we inherited the largest budget deficit of any economy in Europe with the sole exception of Ireland. The idea that Labour has an unblemished record when it comes to the public finances is, therefore, plain wrong. We Conservatives created the OBR, in Parliament, to guard against Labour’s fiscal unaccountability and recklessness with the public finances. We continue to support the role of the OBR in providing open, fully transparent, independent forecasts for all to see, no matter who is in government.

It was genuinely good to hear that the Chancellor recognised the importance of the OBR when she said that because of the OBR, in her words,

“You don’t need to win an election to find out the state of public finances.”

She was absolutely right about that. That is why yesterday’s supposed revelations simply won’t wash. In fact, if she is so supportive of the OBR, I ask a simple question: why was yesterday’s statement based on internal Treasury analysis, not OBR analysis? Surely if they are very supportive of the OBR they would have asked the OBR to conduct the analysis. The OBR has always said that it would be ready to produce analysis at any time, on short notice.

That was yesterday, and today we are here to talk about the Bill before us. While we are supportive of the OBR, we think it is right that the House should consider a number of concerns that we have, on which we will seek clarification. First, the Bill will require the Treasury to request, and the OBR to produce, a report on fiscally significant measures announced by the Government, with the exception of temporary, emergency measures. The definitions of these terms—"fiscally significant”, “temporary” and “emergency”—will be set out in a charter for budget responsibility as the Chief Secretary outlined. The draft charter text, published alongside the Bill, deems measures to be fiscally significant if they cost the equivalent of 1% of GDP in any financial year. It defines as temporary any measure intended to end within two years, and the draft charter text gives the OBR discretion to reasonably disagree with the Treasury’s interpretation of what constitutes emergency.

Despite some of the rhetoric, we note that nowhere in the Bill or the surrounding documents is the OBR empowered to prevent a Government from taking fiscally significant action of any kind. The effect of this Bill is to ensure that an OBR costing accompanies any fiscally significant action the Government take—nothing more, nothing less. The way in which the Chancellor described this Bill as a so-called lock to prevent certain activity is—to be generous on my first outing—overly ambitious. The Bill is described as introducing a fiscal lock, which the Chancellor promises will prevent large-scale unfunded commitments, but that is not what it does. There is no fiscal lock, and if anything, it is a forecast lock. The potential impact of the Bill is so limited and specific as to lead some to wonder whether, for all the animated hyperbole of the Chancellor yesterday, this is the prioritisation of gimmicks over governing, despite what the Prime Minister said on the King’s Speech.

Secondly, and I say this genuinely constructively, the Government need to be better prepared to clarify what is meant by “emergency”. The draft charter gives the OBR the power to reasonably disagree with the Government’s interpretation of what is an emergency, but this raises questions about whether the OBR is equipped to make such a decision in the first place. What counts as an emergency should mostly be clear-cut, but what about instances that are less obvious, or when unforeseen circumstances come down the track? The OBR would then be straying into political decision making, which would rightly raise constitutional issues. Even if it is ultimately for Ministers to decide on such matters, any resulting disagreement between the Government and the OBR about whether the circumstances amount to an emergency could undermine the credibility of the Government, the OBR or both.

[Ms Stella Creasy (Walthamstow) (Lab/Co-op)]

I am genuinely perplexed whether the hon. Gentleman is with the former Member for South West Norfolk, who wanted to see the OBR abolished and not part of any decision making, or feels that the Bill does not go far enough. Either way, does he recognise and accept, as thousands of mortgage payers in this country now do, the disaster of the previous Conservative Prime Minister’s Budget, the impact it has had and the need never to go back to those days?

[Gareth Davies]

We support the OBR. I have been clear on that. We created the OBR, so to suggest that we do not support it is incorrect. I would just pull the hon. Member up on some economic facts. The reason interest rates were so high and mortgages went up is that we faced a global challenge, which this Government will now experience. In office, the Government have to deal with events, and what caused inflation around the world was two things: the war in Ukraine, which pushed up wholesale gas prices to record highs; and the fallout from a once-in-a-century pandemic that the Labour party seems to have forgotten about. Those two factors resulted in 11% inflation, which resulted in the Chancellor and Prime Minister at the time prioritising bringing down inflation, which we did, to 2%. We have now handed this Government 2% inflation, half the deficit we inherited in 2010, half the unemployment and the fastest growth in the G7, so it is a little bit rich to suggest that we take lessons from the Labour party on economic performance.

Our third and final concern—we have others, but I am in keeping this short on Second Reading—is that, in the event that the lock is triggered, the OBR does not need to produce one of its standard reports, even though the Treasury, under the Bill, is required to request such a report to avoid breaking the lock. The Bill creates, therefore, the possibility of an entirely new OBR report, which is not envisaged by the original Act. I would be grateful if the Exchequer Secretary explained that and what it means in practice when he sums up. Although standard OBR reports must be published, it is not clear whether that applies to other reports that the OBR may prepare. If this requirement does not apply, are the Government happy to give the OBR the power to decide whether its costings are published? That is potentially very concerning for transparency.

The official Opposition look forward to more detailed scrutiny of the Bill and its practical implications. Be in no doubt: we support the OBR, which we created to bring in much-needed transparency to our fiscal framework after years of fiscal folly and false promises by the Labour party. At the same time, let us not pretend that the OBR should be the ultimate judge of good policy, that nothing bad can happen under its watchful eye and that nothing good can happen beyond its gaze. Labour Members know this: it is precisely what they argued 15 years ago when we first debated the Bill that led to the OBR’s creation. The OBR should not become too political. It should be a referee, not a player, in the fight for fiscal accountability. In the end, we stand by the principle that the British people, through their elected representatives, should always have the deciding say on public policy. We look forward to debating this further in the months ahead. We will not be voting against this Bill on Second Reading. I look forward to the debate.