Budget Responsibility Bill

Lord Altrincham Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Lord Altrincham (Con)]

My Lords, we thank the Minister for bringing forward this important Bill. Perhaps we should also thank the OBR for its very good work over these past 14 years. We in Parliament have been concerned about the supervision of financial regulators, and we did a lot of work last year on strengthening the supervision of other financial regulators in the Financial Services and Markets Act. Separately this afternoon, the Industry and Regulators Committee has been looking at a whole range of independent agency regulators with a very mixed performance.

It is worth pausing for a moment on the Office for Budget Responsibility itself, which is widely admired across government, in Parliament and, as the Minister says, by the current Government. It is to its credit that it managed to find a way to work closely with government, but independently and transparently. We should mark this with respect, given how stressed the government finances are.

A core objective of the OBR is, of course, the sustainability of the public finances. Perhaps we should look at how that has been since it was set up, following the 2011 Act. In 2012, public sector debt to GDP was 74%. One way or another—by spending the fiscal headroom across various Governments, and following the different issues that arose—we are now at 98%, which is a rise of around 2% per year in debt to GDP. This kind of budget responsibility is becoming almost unaffordable to the public exchequer, and things will have to change.

They will have to change because the scale of public spending—to the tune of £1 trillion a year—requires very good forecasting, and some of the forecasting that underpins this tight nexus between the Treasury, the OBR and their own reviews has been challenged. The OBR substantially missed the inflation change; lots of other agencies missed it—less in the private sector than in the public sector—and that is a problem because it hints at a closeness between the OBR and the Treasury because it was agencies of government that all missed the inflationary change. The OBR reviews its own forecasting very carefully, so when it reviews that error, it will tend to look at supply shocks in Ukraine and downplay quantitative easing and rates. That is one area of weakness, but there are others that will affect this concept of the fiscal announcement.

The OBR has struggled with basic numbers around population. It tended to underestimate population and is now scrambling to increase population in its model, which currently has a population of 57 million adults in the UK in 2029. This number is extraordinarily sensitive, obviously, for estimates of average wages and welfare spending. The OBR says that modelling those kinds of assumptions is very difficult because they are modelled off much lower levels of immigration than we are currently seeing, and these are the kind of numbers that would trigger enormously different fiscal outcomes in the Treasury/OBR model. There are other numbers in the forecast which are very sensitive, and the OBR itself mentioned this, but it is important that we reflect on this as we think about how this kind of fiscal brake might work. The OBR is modelling the expected tax take out of the economy to reach 37% of GDP in 2029. It is essential, of course, that it does reach that kind of level, but it is unknowable whether the economy can really sustain that level of taxation. It is a modelled outcome—we must all collectively hope it can work, but it might not, and therefore inherent in the actual forecasts are very significant fiscal risks.

One other area to mention in the OBR numbers that will underpin the Budget in October is the huge variable of accounting for the economics between the Treasury and the Bank of England. This is an extraordinarily enigmatic subject, not particularly well explained by the OBR itself, whereby the Bank can, at its discretion, impose costs on the Treasury which themselves could become very significant in these fiscal numbers. My question to the Minister is: what should we expect the costs of the asset purchase scheme to be between the Treasury and the Bank of England for this year? Will that be an area in which the Treasury can balance the numbers that it believes are a black hole? The kind of scale of adjustment is easily that big—for example, the Bank of England could easily stop issuing gilts for the coming months, seemingly at its discretion—so maybe the Minister could clarify that.

I end with the Chekhov question. Chekhov used to say that when you see a revolver on the mantelpiece in the first act, it will always be fired before the final curtain. I ask the Minister whether we can expect the fiscal announcement, beautifully described in Clause 1 as the “section 4(3) report”, to take place in this Parliament.