Office for Budget Responsibility

Lee Rowley Excerpts

Tuesday 24th July 2018 Westminster Hall

[Lee Rowley (North East Derbyshire) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Ochil and South Perthshire (Luke Graham) on securing this important debate; the relatively small number of Members in the Chamber is disproportionate to its impact, and I know our colleagues are desperate to be here and talk about these things. This is one of the most interesting and important debates the House has had in the last few weeks, in either Chamber, because underneath its surface is a series of questions that we as politicians, on both the Opposition and the Government Benches, have about what we want the debate to be around finance, fiscal policy and monetary policy in the coming years, and how we ensure that that is underpinned with a series of structures that make those debates useful and helpful for those who seek to understand and, eventually, vote on them.

I welcome the main thrust of what my hon. Friend talked about in trying to ensure that the Office for Budget Responsibility—the structure that we have in place already—could be expanded, so that it gave an understanding and indication of the costings of the myriad Bills that are introduced, whoever puts them forward, in the white heat of an election campaign, however difficult that is. That would give the electorate an opportunity to stand back—if done correctly and appropriately—and understand what people and parties were suggesting, and how responsible and, in some cases, irresponsible, those parties were being about our future financial and economic health. We have seen, over several decades, across the world, an increasing move to independent structures, whether independent central banks or independent fiscal watchdogs. I think this is a natural extension of that trend, which I would welcome.

I have both non-partisan and partisan points to make, so I will get the non-partisan ones out of the way first, before the hon. Member for Oxford East (Anneliese Dodds) intervenes on me, as I am sure she probably will. These things are important for having an educated democracy. To understand where we are going as a country, how much we are spending and the opportunities that we are putting forward for our communities, the public have to have the information so as to understand the different choices being placed before them. It is an excellent idea to give people the tools to understand the implications of the policies that are being made—with the caveats, which I will come to and which my hon. Friend has explained.

We have myriad policies that sound brilliant in isolation, and it seems they should have been implemented decades ago. In isolation, that makes the Government look as if they have been mean or not cared about certain areas. There are often reasons, however, why policies are not implemented. There are reasons things are not necessarily a good idea, even though they look good on paper. There are opportunity costs to decisions that are made. If we can have a discussion about economics and implications, we will be stronger as a democracy.

That discussion must necessarily accept that the world is complicated. In politics, there is a tendency to simplify discussions, particularly about finance and fiscal policy, to a point where they become meaningless. We talk about billions, gaps and black holes in finances without understanding the economic implications and realities of the assumptions underneath them. Wherever we are on the ideological spectrum, it is important to improve the quality of debate about our finances and about where the Government—whoever is in government—seek to take them in future.

I welcome the proposal from that non-partisan perspective and from a partisan perspective, because if it had been in place in 2017, it would have blown apart the Labour manifesto, which was the biggest work of political fiction and fantasy I have seen in my lifetime. I say that not to annoy the hon. Member for Oxford East, but on the basis that on 12 May 2017 the Institute for Fiscal Studies said:

“This manifesto cannot be summed up in mere numbers.”

It also said that the tax measures were “highly uncertain”, that key elements of it were not explained, and that there was an inherent contradiction in borrowing more and seeking to reduce debt. I know that there is a way to do that, but the quantum of debt that the Labour party manifesto suggested was entirely unrealistic. If the Labour party had got in, and if I were not here today as one of the six Members of Parliament who gained a seat from it, we would be in a problematic economic and fiscal position.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I will do the large-scale demolition later, but I will ask the hon. Gentleman one question now: where were the costings in his party’s manifesto?

[Lee Rowley]

No one assumes that the 2017 election was perfect on both sides. I accept the principle of what the hon. Lady says to some extent: we did not have a good economic debate in the 2017 election, and I hope proposals such as this will improve the quality and standard of future debates.

My underlying point, which is partisan but not party political, is that I am extremely concerned about the level of debt that western democracies have taken on over several decades—that is one of the reasons I am in politics. That debt is storing up huge challenges for our children and grandchildren in the coming decades.

Speaking about debt has gone out of fashion in the last couple of years; it has not been a central part of our discourse, as it was when we had a large deficit several years ago. It is a credit to the Government that that deficit has been brought down, but it has not been eliminated. On a daily basis, we still add costs and create debt for our children and the people who will be here in 30 years’ time. Although debt is less than it was eight years ago, we should never forget that it is still significant. Between 2002 and 2014, debt as a proportion of GDP rose in every western democracy in the G7. In some cases, that rise was minimal, but in others it was extremely large. Western democracies have a debt addiction that will be problematic in the long term.

As a country, we have moved from paying £30 billion annually in interest payments to paying nearly £50 billion in recent years, and that will only increase. The problem with paying £50 billion is that some of the conversations that we have here every week—about how much money we should put into the health service, the education system or welfare—would be much easier if we were not spending 8% of our budget on debt repayments to financial institutions elsewhere in the world, just so we can hold money that we spent many years ago and that cannot have any benefit today.

That £50 billion is the equivalent of building a hospital every four days, of employing thousands of nurses, doctors and other people in the public sector, or of significant cuts to income tax. The problem is that if we, as a representative western democracy, do not arrest our continued debt addiction, in 20, 30 or 40 years’ time, the figure will be £75 billion or £80 billion in real terms.

Many people have suggested that extending the remit for independent fiscal watchdogs, as my hon. Friend the Member for Ochil and South Perthshire has proposed, does not work, because it is ultimately impossible to model some of the underlying implications as there is an inevitable political bias in the assumptions that will be utilised to assess the activities, and because they might not be truly independent.

My hon. Friend also talked about the situation in 2014-2015, when the former shadow Chancellor suggested that the Office for Budget Responsibility look at Labour’s manifesto costings, but it did not have the capacity to do that. Those are all interesting points, and probably worthy of debates in themselves, but we have to decide whether we want to improve the quality of debate on financial and economic policies—and I do. The extension of the OBR’s remit would be a positive step in that direction.

Those watchdogs work and are useful, as my hon. Friend showed by talking about the Congressional Budget Office in America and institutions in several other countries around the world. I will point to two examples from Australia, where I have family; I am particularly interested in the political machinations there.

In 2007, the Liberal party, which I would closely ascribe to if I were in Australia, was moving out of office and the centre-left party was coming in under Kevin Rudd. In the heat of that election campaign, there was a big debate between John Howard, the Prime Minister, and Kevin Rudd, who would become Prime Minister, about financial and economic costings. The centre-right Government were trying to splurge to win an unprecedented fifth term in office, so they proposed approximately double the increase in spending that the centre left proposed.

I would naturally support my Liberal friends in Australia, but they were not proposing the right policies at the right time, and in doing so, they were not recognising the challenges of an overheating economy. Australia’s independent watchdog came along and said that the proposals would cause problems, which gave the mantle of economic credibility to the Labor party—something that is rarely done across the world.

Kevin Rudd is not a natural fellow traveller for me, but his biography says that

“barely 10 days out from voting day…we had won the all-important battle for fiscal credibility…the political dividends were reaped not only from a slew of Australian financial and economic commentators but from the international credit rating agencies too. Fitch stated that Australia would retain its AAA credit rating if Labor was elected”.

That is an example of why this kind of policy, and this kind of proposal, is really important.

If we fast-forward to the 2013 Australian election, Kevin Rudd was at the end of his second term as Prime Minister and was seeking to splurge to stay in office. In the white heat of the election campaign, his party put out a number of scare stories about why the incoming coalition Government were going to cut loads of things, cause huge economic problems and really affect the economy—the kind of thing that we hear quite regularly. The Australian published a book called “Triumph and Demise” by Paul Kelly, an eminent journalist in Australia, in which he said:

“In the second-last week of the campaign, the heads of Treasury and Finance issued a statement repudiating Labor’s claims”

on the costings of the coalition—the opposition. He continued:

“It was an unprecedented event, the biggest story of the campaign and a humiliation for Rudd as prime minister. Rudd had over-reached and been repudiated by his own advisers. The symbolism of a dying, dysfunctional and dishonest government was irresistible.”

I would not particularly like to have been in John Howard’s or Kevin Rudd’s shoes, but that demonstrates that if we get structures right and have an independent watchdog that can look and say, “This doesn’t work. This is wrong. These numbers are obscured,” that can improve the quality of debate and focus people on the underlying questions that are being asked.

However, that will only ever be useful if we, as politicians, and the country at large, recognise that statistics are not necessarily the be all and end all, that there is a wider context to be gained from them, and that we need to treat them with caution, as my hon. Friend outlined. But in principle, the extension of the OBR’s remit is extremely important. Although I recognise that there are challenges, if we are looking to take steps to improve the quality of debate—both within this place and without, in the wider community—we should seriously consider ideas such as this, which I welcome strongly.