Charter for Budget Responsibility

Jeremy Corbyn Excerpts

Wednesday 29th January 2025 Commons Chamber

[Darren Jones]

The OBR was very clear, as Members will see in its publications in the House of Commons Library, that the spending plans announced by the previous Government were—to quote the chair of the OBR in his evidence to the Treasury Committee—a “fiction.” The OBR forecast provided to the Government made it clear that had the in-year spending pressure been reported transparently, the last forecast under the previous Administration would have been “materially different”. That shows that the lack of transparency on in-year spending was a secret held by only a few Ministers in the last Government, and neither the public, Parliament, we in opposition nor the OBR knew about that problem. That is why this Government have already legislated to bring forward additional strengthened powers for independent checks and balances and transparency, and we have committed to sharing in-year spending pressures with the Office for Budget Responsibility so that we never end up in a situation like the one we inherited.

The Chancellor’s autumn Budget put the public finances back on track, and we will keep them there. Our commitment to sound public finances is non-negotiable. Our new charter for Budget responsibility, underpinned by the new fiscal rules, ensures a more transparent fiscal framework and provides a stable foundation for growth. Today I will outline the changes that we have made to the charter for Budget responsibility, as published in draft at the autumn Budget 2024 and laid before this House last week.

Fiscal rules are a key part of the UK fiscal framework. At the autumn Budget in 2024, the Chancellor confirmed the Government’s fiscal rules as set out in our manifesto, which will play a vital role in unlocking investment. These rules will put the public finances on a sustainable path and prioritise investment to support long-term growth. They consist of two rules: the stability rule and the investment rule.

The stability rule aims to move the current Budget into balance so that day-to-day spending is met by revenues, meaning that the Government will borrow only for investment. We will meet this rule in 2029-30, until that becomes the third year of the forecast. From that point on, we will balance the current Budget in the third year of every Budget, held annually each autumn. This will provide a tougher constraint on day-to-day spending so that difficult decisions cannot be constantly delayed or deferred, as they were under the last Government.

I am sure the House would recommend that the Government should live within their means. That means that public services have to be able to live within their budgets, and it means that tax revenues have to pay for day-to-day spending. Never again will we end up in the position the country ended up in under the last Government, when every week and every month the country borrowed more and more in order to pay the day-to-day bills. That is why when hon. Members on the Opposition Benches complain about the debt burden this country is having to deal with, they should look in the mirror, because they built up that debt burden. The people responsible for filling up the country’s credit card just to pay the bills every month, even in advance of the pandemic, were Conservative Ministers. That will never happen under a Labour Government because of our clear fiscal rules. It is why for the first time in 17 years we are doing a zero-based review of all public spending, not once done under the last Administration but done in the first spending review of this Labour Government.

Secondly, our investment rule requires the Government to reduce net financial debt, defined as public sector net financial liabilities, as a share of the economy. Public sector net financial liabilities is an accredited official statistic, produced by the Office for National Statistics since 2016; based on international statistical guidance, it has been forecast by the OBR since that time. The Institute for Fiscal Studies has noted that the metric offers a

“more complete picture of the Government’s financial position, while removing some of the perverse incentives associated with a narrow focus on PSND”—

public sector net debt.

This rule keeps debt on a sustainable path while allowing the step change needed in investment by targeting a measure of debt that captures not just the debt that Government owe, but financial assets that are expected to generate future returns. By targeting net financial debt for the investment rule, the Government are prioritising investment to drive long-term growth while getting debt falling as a share of the economy.

The move to net financial debt will be supported by a comprehensive set of guardrails to give confidence that there are rules around the investments the country can make. Like our stability rule, our investment rule will apply in 2029-30 until that year becomes the third year of the forecast, and from that point onwards net financial debt will fall in the third year of every forecast.

The move to net financial debt means that at the autumn Budget the Government were in a position to confirm public investment that will be £100 billion higher over the forecast period compared to the previous Government’s plans. I am pleased to say that in its autumn forecast the OBR confirmed that the Government are on track to meet both fiscal rules two years early, in 2027-28, displaying the Government’s commitment to sound finances.

The Chancellor has asked the OBR to produce a forecast on 26 March, which will assess us against these rules once again. Our commitment to these fiscal rules is iron-clad. The UK has changed its fiscal rules in the past more than any other country, but this Government know that stability matters. That is why the new charter sets out clearer circumstances under which the fiscal rules can temporarily be suspended through a new strengthened escape clause. The new escape clause requires a decision on suspension be supported by the OBR’s analysis so that the rules can be suspended only with sufficient justification.

As well as new fiscal rules, the updated charter for budget responsibility includes a set of wider reforms that ensure a more stable and transparent fiscal framework. Because fiscal responsibility is so central to this Government’s mission, the first piece of legislation passed in this Parliament was the Budget Responsibility act 2024. It delivered our manifesto commitment to introduce a fiscal lock. I do not think Members on either side of the House need reminding of what happens when huge unfunded fiscal commitments are made without proper scrutiny and key economic institutions such as the OBR are sidelined. We will not let that happen again. The fiscal lock therefore guarantees in law that from now on every fiscally significant change to tax and spending will be subject to scrutiny by the independent OBR.

The charter sets out the details of how the fiscal lock will operate. As well as the new guiding fiscal principles to move towards only borrowing for investment and to keep debt on a sustainable path, the OBR will monitor progress against a dashboard of key debt sustainability metrics to ensure the Government are taking a broad view of fiscal sustainability. A broader view will allow the Government to form a full assessment of the sustainability of the public finances and support us in seeking to improve sustainability over time.

We are also enhancing fiscal and economic stability by confirming in the charter today that the Government’s intention to move to one major fiscal event per year will be honoured, giving families and businesses certainty on tax and spending plans, as will the requirement on the Treasury to conduct regular spending reviews every two years and setting spending for at least three years, ensuring public services have certainty on their funding and that spending decisions cannot again be repeatedly delayed. In addition, it guarantees a three-year rolling budget for the OBR, to support its independence. We are further strengthening fiscal transparency and accountability by accepting all the recommendations of the OBR review of the March 2024 forecast for departmental expenditure limits, including to improve the spending information the Treasury shares with the OBR.

The OBR is widely recognised as providing independent, credible and high-quality analysis. It is a guarantor of economic stability. Going forward, the Treasury will provide the OBR with information on the in-year position, allowing it to forecast underspending and overspending against departmental expenditure limits where appropriate. This will ensure the unfunded pressures identified at the public spending audit never happen again. We are a Government who will consider the impact of our current spending decisions on future generations, and to show how the long-term health of the public balance sheet is bolstered by sound investments, the charter requires the OBR to report on the long-term impact of capital investment and other policies at fiscal events.

Finally, I turn to the welfare cap, which we are also debating today. The Government are retaining the welfare cap within our fiscal framework to support our ambitions to keep welfare spending sustainable in the medium term. The OBR will assess whether the new cap has been met at the first fiscal event of the next Parliament. The latest OBR forecast judged the previous welfare cap to be breached by £8.6 billion, following a trend of forecast breaches by the previous Government. This is clearly an unsustainable path for welfare spending. This breach underlines the inheritance left by the previous Government: a failure to control welfare spending and to bring forward radical reform, and, crucially, a failure by the last Government to support people to get the treatment or skills they need to return to work.

[Jeremy Corbyn (Islington North) (Ind)]

In his assessment, what estimate has the Minister made of the increase in poverty and child poverty in our society and the effects of largely uncontrolled rents in the private rented sector, often well above the local housing allowance, which leads people into poverty?

[Darren Jones]

The right hon. Member knows that the Labour party takes child poverty seriously. That is why we launched the child poverty taskforce at the start of this Government, co-chaired by the Work and Pensions Secretary and the Education Secretary, to do a root and branch review of the long-term structural causes of child poverty and the interventions the Government could take to reverse those growing trends that none of us across the House wants to see. The taskforce will report in the coming months, but he is right to point out that housing costs and insecure housing have become ever more important drivers of child poverty in recent years. That is why, through the Renters’ Rights Bill introduced to the House by the Deputy Prime Minister, we are taking action in the private rented sector to provide additional protections and support for families in rental accommodation—for example, banning no-fault evictions and giving more security of tenure for people who are renting.

Like me, the right hon. Member will have had lots of casework where hard-working families, who are just trying to make ends meet and to provide security of income and a roof over their head for them and their families, are failed by a market in which house prices to buy and rent are out of reach and the rate at which we build affordable and social housing is not meeting the demand of the people who need it. That is why we increased funding at the Budget by half a billion pounds to build more affordable and social housing, which we know can be delivered quickly.

On a visit last week to Erewash, I visited social housing developments supported by Homes England and learned from the company building those homes for emh Homes, the east midlands housing association, that it takes only 14 to 16 weeks from laying the foundations through to giving the key to the person moving in. That reminds us why our reform agenda is so important, because the time involved in building—planning, consenting, infrastructure and financing deals—has been significantly holding back the rate of development of social and affordable housing across the country. Those are exactly the sorts of issues where Government have the ability to make a difference, which is why we are committed to accelerating our plans to build 1.5 million homes a year, but, crucially, to tilting that towards more affordable and social housing to support people across the country.

The Government are resetting the welfare cap, given that the previous one was repeatedly breached, and we are doing so based on the latest Office for Budget Responsibility forecast. That will set a new target for 2029-30, alongside our action to control welfare spending and to help people who deserve the assistance. The Government have demonstrated that they will not shy away from doing what is needed to put welfare spending on a more sustainable path—for example, with different decisions such as targeting winter fuel payments to those who need them the most and reclaiming £4.3 billion of public money lost to fraud and error in the welfare system in 2029-30, and £9.2 billion over five years.

We have also announced steps to tackle inactivity through the “Get Britain Working” White Paper and will set out further proposals in the health and disability Green Paper later in spring. Progress against the cap will be monitored by the Treasury and the Department for Work and Pensions. That will include a strengthened accountability framework and the DWP publishing an annual report on welfare spending. By strengthening the accountability of the welfare cap, getting more people into work and reforming the welfare system for long-term sustainability, we are taking the necessary steps to keep spending under control. But crucially, we are also serving the people of this country by ensuring that people who for too long have been at home unable to be seen in the NHS or to get access to mental health services, who have been unable to get the training or support they need to take advantage of the jobs available in our country, and who have been unable to find jobs near where they are, see hope in their futures and know they have a Government on their side who will support them to get back into work. That outcome is better for them, their family finances and their futures, but it also supports us in ensuring fiscal stability.

The reforms to the fiscal framework outlined in the new charter for Budget responsibility will ensure a more stable approach to tax and spend, as well as better transparency and accountability for our Government and future Governments. That stability is inseparable from our plans for growth. Alongside that growth, restoring stability means the Government can pay for increased funding to repair, reform and modernise our public services and to invest in the infrastructure needed to rebuild Britain. For those reasons, I commend the motion to the House.

--- Later in debate ---

[Darren Jones]

The Health Secretary is actively working on this. There are huge opportunities, not just in the NHS but in the Department for Work and Pensions where my right hon. and hon. Friends are working, and throughout Government as a whole. Imagine having a jobcentre in your pocket, on your phone, where you can gain access to the support that you need—as opposed to services that are often out of town or not available when you are available, and where there are difficult processes to go through. That is not great for the people who work in those services. They are there to serve the public, but they are not helped to achieve the right outcomes for people.

This Government are committed to reform but also to investment, because we can achieve better outcomes for people and reduce the cost of running public services in the long run. We are committed to unlocking investment, whether it is through the PSNFL debt definition for infrastructure and businesses or, as a consequence, freeing up public sector grants for public sector investment.

My hon. Friend the Member for Reading Central (Matt Rodda) made a number of excellent points. I am pleased that he is supportive of the commitments made by the Chancellor today to back the Heathrow plans and the enormous opportunity presented by the Oxford-Cambridge growth corridor. He gave the great example of his local technology and telecoms cluster and its development around rail infrastructure, including extra capacity on the Elizabeth line. It is a classic and probably obvious example: if rail and other transport infrastructure is built, people will come and invest in lab spaces, offices and homes. That is why the Chancellor made such a strong commitment today to get infrastructure built and enable private sector investment.

My hon. Friend also made a good point about the role of universities. Our universities sector is one of our great strengths. We have a number of world-leading universities, as well as the brilliant universities that are teaching and carrying out research in every part of our country. These are often the engines of economic growth in their regions, and also the gateway to opportunity for many people.

[Jeremy Corbyn]

The Chief Secretary has referred to the great benefit of infrastructure projects. The Elizabeth line is a very good example of that, but it was way over budget and very late, and the same applies to HS2 and most other big infrastructure projects. What plans do the Government have in that regard? Later we will discuss the welfare cap, an attempt to control welfare spending for the next five years. Does the same cap apply to infrastructure projects?

[Darren Jones]

I thank the right hon. Member for his question, because he invites me to talk the House through our infrastructure strategy. For the first time, we are bringing together Government plans on economic infrastructure, housing and social infrastructure in the same place. It means that when we go through the spending review in the Treasury, working with colleagues across Whitehall, we will be much better than the previous Government at taking place-based decisions. In the past, it was a bilateral discussion between a Department and the Treasury, with no dots being connected between different types of infrastructure. That has led to the failure to capture the growth potential in different places.

We will take a different approach and make sure that infrastructure investments relating to public investment are capped by the numbers set out in the Budget. That is the spending envelope that we have, and we have to prioritise those investments, but they will be based on driving growth and opportunity for people in the places in which they live.

My hon. Friend the Member for Reading Central made a great point about the Oxford-Cambridge growth corridor, the role of connecting some of our great universities, and unleashing the opportunity that exists between them. As I said to the House earlier, the living connectivity arrangements between Oxford and Cambridge are basically non-existent. By connecting these two hubs of innovation and investment, the opportunities are endless.