Budget Responsibility Bill

Lord Frost Excerpts

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

[Lord Frost (Con)]

My Lords, I find this a peculiar Bill. There are a number of odd things about it.

First, as my noble friend Lady Noakes mentioned, it seems odd that this is a money Bill. I do not challenge the decision, obviously, but it does not seem to affect the Government’s powers to raise taxes or spend in any way. I cannot help but notice that, as far as I can tell, the original Budget Responsibility and National Audit Act, which created the OBR, was not a money Bill, so it is odd that this one is. I do not question the decisions on this point but it does seem odd; I agree that it would have benefited from more scrutiny.

This feels more a constitutional Bill in some ways, but it is weak there too. The Minister billed it as a lock on government actions, and others have described it as such, but it does not actually stop the Government doing anything; it only requires the OBR to write a report if they do so, so it seems misconceived in those terms too. One has to ask what the point of the Bill is. It is, of course, a process Bill, but it is also a political Bill. It is written entirely to give an opportunity for the Government and the Labour Party to contrast their activity with the Liz Truss mini-Budget and the decisions taken in 2022. We have heard plenty of that already in this House today.

I think Labour will find two problems with that. First, as my noble friend Lady Noakes has already mentioned, the Bank itself says that two-thirds of the problem was its own mishandling of the LDI crisis. It is hard to see how, if this Bill had been in force and a report had been required, it would have had any effect on that aspect of the autumn 2022 problems. The other problem that the Government will find is that the world does move on. Their own so-called fiscal black hole, which they have already spent a large time creating, is where attention will move. They may regret this Bill before long, to judge by the Niagara Falls of public money that seems likely to pour out of the Treasury in the months and years to come.

I do not think that we are meant to take this Bill seriously. Outsiders recognise that; the IFS itself says that the proposal is “largely performative”. Even the Resolution Foundation describes its impact as “relatively small”. The real impact of the Bill will be to reinforce the position of the OBR in the constitution, but I am doubtful about that for two reasons.

First, for some of the reasons that have been said, the OBR is not a particularly effective institution. It clearly reinforces the Treasury view of the world. It has a poor record, as others have said and as it itself acknowledges. It is negative about Brexit and it repeats the zombie 4%-cut-to-GDP figure that was produced six years ago on the basis of reports put together before we even left the EU. It is doubtful about incentives and what makes a free economy tick. Forecasting is difficult—people bring their priors to it—but the answer is not to do it better or do more forecasts; the answer is to remove the privileged status of the OBR and the forecasts it gives in our economic decision-making. That is the first reason.

The second is that this Bill forms part of the tendency over the past 20 to 25 years to tie down elected Governments with Platonic guardians who think they know better than Governments. This is an intellectual error that began, reasonably enough, with Bank independence in 1997, but it cannot be extended to every single situation. Just because it is good for running monetary policy does not necessarily make it desirable to have independent controls on fiscal policy, to give independence to one regulator after another or to give independence to institutions with wider economic policy effects, such as the Climate Change Committee and many others. These are very different things. You cannot solve the problems that the country faces by constantly giving further independence to unelected institutions and bureaucratic processes.

I am afraid that this error has time to run yet. It is sapping democracy and will make it more difficult to deal with new economic challenges. I hope that, one day, we will reverse this trend and look at this panoply of constraints on government action with a much more sceptical eye.