Autumn Statement 2022

Baroness Lea of Lymm Excerpts

Tuesday 29th November 2022 Lords Chamber

[Baroness Lea of Lymm (Con) (Maiden Speech)]

My Lords, it is a great honour and privilege to make my maiden speech in this House today. I would like to thank everybody in the House, from all sides, for their kindness and support. I am deeply grateful for the guidance and advice offered by all the officers and staff I have met. Black Rod and her staff, the Clerk of the Parliaments’ Office, the doorkeepers, the attendants and the police officers have all been incredibly helpful, not least because I keep getting lost.

In particular, I thank my supporters: my noble friend Lady Noakes, who is also my excellent mentor, and my noble friend Lord Blackwell, who was my excellent chairman when I was the director of the Centre for Policy Studies. I am really grateful. Indeed, I cannot thank them enough.

When I was appointed to this House, it struck me how my life had gone almost in a complete circle, because I began my career several decades ago—I am not telling your Lordships how many—on the other side of Parliament Square, in the Treasury. So I think I can find the way. In my 16 years in the Civil Service, I was attached to several government departments. I worked on, among other things, economic forecasting and the compilation of the economic accounts. It was always fascinating, and it was a terrific foundation for the rest of my career. After the Civil Service, I worked at the Mitsubishi Bank, Lehman Brothers—yes, that one—ITN, the Institute of Directors, the aforementioned Centre for Policy Studies and, lately, the Arbuthnot Banking Group.

Unsurprisingly, I have simply lost count of the number of Budgets, Spring Statements and Autumn Statements I have followed throughout my career. That brings me to this year’s Autumn Statement. I will not discuss the policy aspects of the Autumn Statement—that would be far too controversial—but will confine my remarks to some general reflections on the nature, difficulties and uncertainties relating to economic forecasts. There are many, which makes me naturally sympathetic to the OBR when it forecasts the economy and the public finances for these important fiscal statements.

First, there are uncertainties relating to the underlying data which are the basis of any forecast. I remember well being involved in the estimation and compilation of the balance of payments accounts when I was in the Central Statistical Office, the precursor of the Office for National Statistics. It taught me that, with the best will in the world, there are likely to be significant measurement errors and sampling errors in these accounts, and this applies in equal measure to much of the rest of the ONS’s output. Moreover, the data can be substantially revised as later information becomes available—history gets rewritten. This is not to criticise the ONS or question its integrity, professionalism or competence—far from it. I have the greatest respect for the ONS; I merely emphasise the inherent problems in estimating economic data.

Secondly, there are daunting problems relating to modelling and estimating the interrelationships between the variables in a complex system such as the economy. Moreover, in a changing economy, the interrelationships are not even stable—they change, adding to uncertainty. If you want a bit of light relief, look at the OBR’s website. You will see its macroeconomic model, which provides a useful, if not formidable, rundown of the variables identified within the model and how they interrelate. The model was first put together by the Treasury in the 1970s and is now jointly maintained and developed by the OBR and the Treasury.

Thirdly, any forecast is dependent on some fairly heroic assumptions. In its November Economic and Fiscal Outlook, the OBR referred to the intensification of

“the global energy … supply shocks emanating from Russia’s invasion of Ukraine”

since March’s Spring Statement. It discussed the significant knock-on effects for inflation and interest rates. Crucially, it had to make some fairly heroic assumptions about the future paths of energy prices and interest rates based on market expectations for its latest forecasts. These may or may not be fulfilled; probably not. In some sense, they are always wrong. The issue is whether these assumptions look plausible. To me, the assumptions in the Autumn Statement look perfectly plausible.

So economic forecasts are inevitably subject to great uncertainties, which the OBR and the Bank are at pains to point out. Indeed, the Bank has been using so-called fan charts around its central projections since the 1990s. These fan charts provide a useful indication of forecast uncertainties of the main economic variables: GDP, unemployment and inflation. I notice that the OBR has recently started to use fan charts for its projections of the key fiscal variables relating to the Government’s fiscal targets. This is a useful development.

Digressing for a moment, I feel I should add that it is not just economic models and forecasts that are inherently subject to uncertainties. So are epidemiological models and forecasts, and so are climate change models and forecasts. But that is for another day.

Finally, given the uncertainties surrounding the OBR’s forecasts—and, indeed, the Bank’s—some commentators have been rather dismissive, questioning the purpose of them. I would defend them. Crucially, they provide a valuable, if not invaluable, framework for analysing the economic and fiscal implications of government policy, and they offer a thought-through and informed assessment of where they think the economy is going. Moreover, I understand that the OBR’s record has been perfectly respectable when compared with other forecasts. On that upbeat note, I shall end. I thank noble Lords for their patience in listening to me today.