Budget Responsibility and National Audit Bill [Lords]

Alec Shelbrooke Excerpts

Monday 14th February 2011 Commons Chamber

[Justine Greening]

My hon. Friend makes an excellent point. We cannot allow the Treasury to be judge and jury. That was the problem under the last Government. The Institute for Fiscal Studies said recently:

“If an OBR had been in existence over recent years it might have discouraged Gordon Brown from persevering with fiscal forecasts that most independent analysts thought over-optimistic from 2002 onwards.”

We believe that the OBR can have a real impact on the Government’s financial and fiscal management.

We are clear about the fact that we need to put our country’s public finances back on a sustainable footing. Both the IMF and the OECD went from issuing warnings and cautions about the UK’s economy and public finances to describing the measures introduced by the coalition Government as “essential” and “courageous”. Only a couple of weeks ago the Secretary-General of the OECD urged the British Government to stay the course, and we will. Our bold action has taken Britain out of the financial danger zone, but we must not forget that none of this would have been possible without the crucial first step of increasing the credibility of our fiscal framework. The Bill will put on a statutory footing our reforms of the way in which fiscal policy is conducted in this country.

Let me remind the House of the origins of the Office for Budget Responsibility. Within a week of taking office, we had set up a new independent body to return credibility to official forecasts. Until then, the final decision on official Government forecasts had always been made by the Chancellor and his advisers—one of whom is now shadow Chancellor—rather than by independent experts. Over the past 10 years, the last Government’s forecasts for growth in the economy have been out by an average of £13 billion, and their forecasts of the budget deficit three years ahead have been out by an average of £40 billion. Unsurprisingly, those forecasting errors have almost always been in the wrong direction.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

The transparency that the Bill brings to finances is part of an overall package of transparency. My hon. Friend mentioned budgets that have overrun. Does she agree that the Bill will help to prevent Departments from losing control of their budgets in the way that was described recently by a senior civil servant?

[Justine Greening]

My hon. Friend is right. The fact that, for the first time, official forecasts will be prepared by a body that is independent of the Treasury is critical. It will not only return credibility to the assessment of whether the Government are on course to meet their fiscal mandate, but will make that more likely to happen. I believe that Governments will be reticent about introducing policies that seem to take them off course. There is a clear distinction between the responsibilities involved. The fiscal mandate and the policies will continue to be determined by Ministers. It is not for the OBR to do that; what it must do is assess the economic and fiscal forecasts in the light of those policies, and in the light of their likelihood of meeting the fiscal mandate.

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[Alec Shelbrooke (Elmet and Rothwell) (Con)]

In this debate on the Bill and the Office for Budget Responsibility, I would like to focus on the word “responsibility”. Interestingly, Members in other parts of the House have focused on the downgrading of the growth forecast from 2.6%, to 2.3%, to 2.1% and possibly lower, but at no point has it been said that this allows the Chancellor to ensure that we have a Budget that is based on facts rather than on what he would like the growth figures to be. That is the problem of previous years that led to a bunker scenario.

[David Rutley (Macclesfield) (Con)]

I wonder whether my hon. Friend has noticed that the Institute for Fiscal Studies has said:

“If an OBR had been in existence over recent years it might have discouraged Gordon Brown from persevering with fiscal forecasts that most independent analysts thought over-optimistic from 2002 onwards”.

[Alec Shelbrooke]

I am most grateful for my hon. Friend’s intervention, which makes my point. If the OBR had been there in the past, it would not have been possible to proceed with the bunker mentality that I mentioned. Alternatively, the Chancellor could still have moved forward with the same forecast, but everybody would have known exactly where the blame lay and got rid of the arguments that we hear time and again whenever we talk about the horrific financial mess that this country is in—the chorus from Labour Members saying, “It’s the banks, it’s the banks.”

[Mr Bain]

It is!

[Alec Shelbrooke]

My point is proved by that sedentary intervention. Labour Members think that the whole financial crisis is down to the banks.

There is no doubt that the banks contributed to the global recession, but there is equally no doubt that this country was one of the worst placed countries in being able to deal with the downturn. Let us not forget what a structural deficit is. Again, I see Opposition Members shaking their heads, completely in denial of the fact that this country was living way beyond its means. One does not rack up a £1 trillion debt in the good times if one is acting sensibly. While £120 million a day in interest is going to foreign nations, we see councils around the country, especially Labour-run councils, cutting front-line services that impact on the public and trying to blame the Government, yet never mentioning what we could have done with that £120 million a day. We have to get a grip on the economy.

I want to return to the OBR, because I am conscious, Mr Deputy Speaker, that you have been trying to keep the debate on track. Let us consider the name of this body —the Office for Budget Responsibility. “Responsibility” is a word that has been lacking in the governance of this country and its fiscal policy, not only in the Treasury but, as we recently learned from senior civil servants, in other Departments that lost control of spending. We in this House have to be responsible and move things forward.

[Alison McGovern]

The hon. Gentleman rightly says that we should be cautious. How successful does he feel that previous attempts to add caution to Budgets were? The National Audit Office has previously examined the assumptions made by the Treasury. For example, it was assumed in the March 2010 Budget that GDP growth was 0.25% lower than it really was. Would he like to comment on how those previous attempts at caution might feed into the OBR’s future work?

[Alec Shelbrooke]

As the hon. Lady suggests, previous forecasts and attempts at caution came from many different angles. The public will recognise that the OBR is giving us a proper set of figures that can be relied on. If the Chancellor of the Exchequer then ignores those figures and ploughs ahead, not only would the calls from the Opposition be deafening but the public would know that the Chancellor was acting against their interests.

[Matthew Hancock]

Does my hon. Friend know that in 1995 the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) called for a panel of independent forecasters to express their views on public finances? Does he agree that it is a great shame for the nation that the right hon. Gentleman did not act on that when in government, because it might have meant that there was restraint and, in turn, that he would not have left this country in such a terrible mess?

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[Alec Shelbrooke]

I am grateful for that intervention. Needless to say, one of the very first things that our Chancellor of the Exchequer did was to give away the forecasting power to an independent body so that our statistics be relied on. This is about not just public faith in the statistics but the faith of the money markets internationally. That is why the forecasts and credit ratings of this country have been upgraded since the emergency Budget, and secured since the Government laid down a clear, responsible fiscal policy on how they were moving forward. These are highly important matters.

Like many people, I am sure, I am sick to death of the cherry-picking by Labour Members. Stopping that taking place strengthens the case for the Office for Budget Responsibility. The hon. Member for Glasgow North East (Mr Bain) told the House about GDP figures between 1997 and 2010, when Labour left office, but he never mentioned that the private finance initiative was taken off the books. That meant that huge amounts of public debt and public spending were not linked in to those GDP figures because of a fiddle done with the statistics. That cherry-picking must, and will, stop under the Office for Budget Responsibility.

We are told that forecasts can change and that it is therefore not the fault of the previous Chancellor that we are in such a mess. I would like to have seen the forecasts that were made for the price of gold in 2000, when it was at its lowest level ever. Was everybody saying, “It will just drop further and further, so sell the lot now”? I very much doubt it. When things go wrong, it is too easy for the Opposition to say, “It wasn’t our fault—forecasts change.” We now have a Chancellor of the Exchequer who has taken the bold step of passing responsibility to the Office of Budget Responsibility and has put together a Budget that is based on realistic figures rather than what he would like them to be, buried in his bunker at No. 11.

[Alison McGovern (Wirral South) (Lab)]

It is a pleasure to follow the hon. Member for Elmet and Rothwell (Alec Shelbrooke), whose robust arguments I always enjoy, if not agree with.

The purpose of this Bill is to separate politics and economics, which is not always an easy job but is one that it is important to do. There is a body of academic understanding about the importance of the independence of judgments, forecasting and transparency, and that importance is recognised and understood on both sides of the House. In many ways, the Bill makes clear Labour’s economic legacy of the past decade—rules-based economic policy. The reasons for the sustainable investment rule and the golden rule were clear: after decades of boom and bust, it was felt that the way forward was to establish clear lines of accountability and rules by which economic policy might be set.

[Alec Shelbrooke]

I agree that the golden rule was important, but how does the hon. Lady respond to the fact that the dates of the cycles were moved to fit in with what the then Chancellor was claiming instead of sticking to the timeline that he originally outlined for the fiscal cycle?

[Alison McGovern]

Understanding the business cycle has been the job of economists since the dismal science began. The fact that it is difficult does not make it the wrong thing to try to do. I applaud some of the work that has been done by the Treasury and others in trying to find a better way forward. The hon. Gentleman asks an important question that cannot be dismissed by saying, “Oh, this is just people politicking.” Understanding the business cycle is extremely difficult.

When we consider the importance of rules-based economic policy, it is important to reflect on the fact that the Office for Budget Responsibility is to fiscal policy what the independence of the Bank of England was, and remains, to monetary policy: that is, it is an external-to-the-Treasury body that is charged with an important economic function that will drive the policy prescriptions that the Government make, in liaison and discussion with, and working alongside, independent chairs and officials from the organisations concerned. I have no doubt that that is an extremely difficult job. I wonder how real that independence can be. That is an important question for us to consider as the Bill moves through the House. The OBR’s work will be inextricably linked with Departments.

That point was brought home to me by the answer to a parliamentary question in which I asked the Department for Work and Pensions for forecasts of the number of young people who would be unemployed through the life of this Parliament. The Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling) wrote:

“The Department produces projections for business planning purposes which are aligned to the overall independent claimant count forecasts published by the Office for Budget Responsibility”.—[Official Report, 31 January 2011; Vol. 522, c. 587W.]

I wondered what the nature of that alignment would be. I understand that it will be an iterative process as business planning projections are made and discussed in challenged conversations with the OBR. It will not be easy to maintain the independence of this body, but we must all strive to do so.

If you will allow me, Mr Deputy Speaker, I will take this opportunity to say that I mentioned that parliamentary question in Treasury questions last Tuesday, and said that

“the Government’s own business planning projections show that the proportion of young people on the dole by the end of this Parliament will be reduced by less than 1%.”—[Official Report, 8 February 2011; Vol. 523, c. 153.]

I misspoke, and should have said less than one percentage point.

It will be a difficult job behind the scenes to maintain the independence of the OBR. Lars Calmfors, who has been mentioned, has argued that it will be difficult to stop or prevent behind-the-scenes negotiations with the Treasury. However, I believe that the Government have set such store by the independence of the OBR that they want it to succeed and its independence to be maintained. As hon. Members have suggested, it could have increased accountability to Parliament via the Treasury Committee. I am sure that the members of that Committee will be perspicuous in demanding that accountability and independence.

To conclude, I will make a few remarks about rules-based economic policy. I take it from this debate that it is agreed across the House that the right way to make economic policy is to set out ahead of events the rules and principles that the Government wish to stick to, and that the Government should allow themselves to be held up and judged on the basis of those rules. What could possibly be the problem with that approach to making economic policy? In some ways, we are already seeing the problem. Young people in this country who are unemployed because of the global shock face significant difficulties. We have to ask ourselves how the rules that we have set as the basis of our economic policy allow us to act to ensure that our economy runs well. Surely, economic measures are the tools to aid a well-functioning society, not the other way round. If so, our economic policy must be able to respond to shocks.

Not only must the Government say what the rules for their economic policy are and allow themselves to be judged by independent bodies on those rules, as they are doing; they must also say how they will respond to crises. Should this country find itself in a further economic downturn, facing an even worse situation for residents of this country, especially those on the lowest incomes and at the start of their careers, who face severe unemployment, how will the Government use the flexibility in their economic policy to return the country to growth, and how will their economic rules take account of the possibility of shocks? This is a significant challenge for the Government and I hope that all hon. Members will add to the scrutiny of the Bill as it progresses.

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[Stephen Williams]

I was talking about events prior to the crash, rather than the policy response to the crash itself, which was in any case initially rather timid and slow. My right hon. Friend the Member for Twickenham (Vince Cable) repeatedly urged the Chancellor to nationalise Northern Rock, which was the first symptom of the crisis, but those urges were resisted for quite some time.

[Alec Shelbrooke]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are getting tempted into an area where we should not be. We are dealing with Second Reading. I am sure the hon. Member for Bristol West (Stephen Williams) will stick to that, and that Mr Shelbrooke’s intervention will be relevant to it, and not a history lesson for those in the Chamber.

[Alec Shelbrooke]

Thank you, Mr Deputy Speaker. My hon. Friend was trying to make the point that the key word in the name of the Office for Budget Responsibility is “responsibility”.

[Stephen Williams]

I thank my hon. Friend for that intervention.

Predictions and forecasting are at the heart of the Bill. I slightly disagree with my hon. Friend the Member for Cities of London and Westminster (Mr Field), my coalition colleague, who has now gone off to his black-tie dinner, because the crash—if not its scale—was forecast by my right hon. Friend the Member for Twickenham. I remember him being derided and sneered at in the House at the time, including by the hon. Member for Wallasey (Ms Eagle), who today led for the Labour party.

I welcome the setting up of the OBR, and particularly the appointment of Robert Chote from the Institute for Fiscal Studies as its first permanent chair. I am sure that all hon. Members have cited IFS reports in support of our policies at various times, and that we have all been on the receiving end of its critiques, which are not always welcome. Nevertheless, everyone recognises that those reports were arrived at independently, and therefore that they had authenticity and credibility about them. I also welcome the appointment for five-year terms of Mr Chote’s fellow board members and the ongoing Treasury Committee scrutiny, of which my hon. Friend the Member for Macclesfield (David Rutley) spoke. As we heard, the Bill is not a panacea for dealing with economic ills, but I am sure that the OBR will none the less restore credibility to our statistics and give a sound basis for decisions.

The second part of the Bill, which has not been mentioned much, deals with the National Audit Office. As I have mentioned Disraeli, I will mention in balance Gladstone, who set up the NAO. All Members of Parliament will recognise that the reports produced by the NAO are excellent and well informed across the range of policy issues. As the hon. Member for Stretford and Urmston (Kate Green) said, it is the role of the NAO to review the impact of Government policy especially in financial areas, and to examine whether money has been spent efficiently according to the original remit of the policies. Although the NAO formally reports to the Public Accounts Committee, of which I was briefly a member in the last Parliament, its reports and its work are fundamental to the operation of the House of Commons itself.

I welcome the statement made by the board of the NAO and the professional qualifications now held by some of its board members. I remember going to a briefing by the NAO not long after I became a Member of Parliament and being astonished by the lack of financial qualifications of many people in the civil service—I shall avoid looking in their direction—who none the less managed the purse strings of billions of pounds of public money. Professional qualifications should also be rolled out around Departments.

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[Sheila Gilmore (Edinburgh East) (Lab)]

I seem to be fated—this is the second time in two weeks—to be the last Back Bencher to contribute to a debate. Tempted though I am to continue to speak until as close to 10 pm as allowed by the need for wind-up speeches, I shall resist temptation—I can see my colleagues’ looks of horror. For those of us who are far from home and whose potential valentine is 400 miles away, we have nothing better to do than speak in this debate.

More seriously, it will be useful to have independent forecasts; indeed, it already has proved useful. In the short life of the Office for Budget Responsibility we have seen some figures that even this Government, who have professed a desire to be transparent, might not have been too happy about. Several of my hon. Friends have referred to figures such as the forecasts for unemployment and for economic growth. Had it not been for those reports, the Chancellor and other members of the Government might have been tempted to be a little more optimistic and gung-ho. We saw a little of that even last year when some Ministers talked about economic growth in the second and third quarters. We might have thought that everything was now motoring forward, but the OBR was able to tell us that that was not quite the case. The OBR’s forecasts may not always be palatable, even to the Government who have set it up.

I appreciate, Mr Deputy Speaker, that you have not wanted people to discuss the economy generally, but it was clear from the context in which this debate was put by the Economic Secretary that we cannot entirely avoid doing so. She made it clear that the OBR’s remit is determined by the Government’s view of the economy and what needs to be done to deal with it. She said that deficit reduction was the priority and the context for the OBR, but the question of how to do that remains. How do we reduce the deficit, how fast, and what are the implications of reducing it too fast? The Opposition believe that the actions that have been taken in order to fit the framework set for the reduction of the deficit in this Parliament may be counter-productive. The deficit may in fact rise, because if unemployment rises, demand falls and the economy does not grow, tax revenues will fall even further—and that was part of the reason for our current position. If that happens, we will see the deficit grow.

[Alec Shelbrooke]

As the hon. Lady has said, the OBR will indeed stop a Chancellor saying, “Growth is going to be this amount, and therefore I will borrow this amount,” while knowing full well that growth might not be so high and he might not be able to repay it. Surely that was the problem in recent years, and it is hoped that the OBR will stop such mistakes from being made again.

[Sheila Gilmore]

Our views of when it is appropriate to borrow and what the Government should do about the economy are clearly different. Emotive words have been used in this debate, including the term “mountain of debt”. Coalition Members are fond of saying that interest payments on borrowing are wasted. They are also fond of domestic analogies, and we hear a lot about the national credit card being maxed out, but there is another domestic analogy that we might use. When we pay our mortgage payments, we do not say that that is money wasted—it is money being invested for the purpose of acquiring a home.

When I was the convenor of housing for Edinburgh city council, 40p in the pound of tenants’ rents went on debt repayment. Sometimes the local newspaper and council opposition members would say, “This is terrible mismanagement”, but it was not mismanagement—it was an investment in building homes over many years and improving homes with such luxuries as central heating and double glazing.