Office for Budget Responsibility

Lord Higgins Excerpts

Monday 14th June 2010 Lords Chamber

[Lord Higgins]

My Lords, arising from the point that has just been made, does my noble friend agree that while it is important to grow our way out of the problem it will not be the case that we can grow our way out of the structural deficit? By definition, that is something quite separate from the possibility of growing one’s way out. This is indeed a very depressing report, although it is extremely helpful to have the figures which have been given. I have two points for my noble friend.

First, it is clearly extremely important that we should reduce the deficit as soon as possible, but what has not been mentioned at all is the extent to which it is proposed to fund the deficit meanwhile. That does of course have very important implications for the level of aggregate demand. Can my noble friend say what the policy is on funding the deficit as we go along in advance of actually managing to reduce it?

Secondly, in the same context, one of the extraordinary things that happened under the previous Government was the policy of so-called quantitative easing. There is a general assumption, not least in the financial press, that this to some extent increased the money supply and therefore increased economic growth. As far as I can establish, that simply is not true, certainly in relation to the size of the so-called quantitative easing. The reason is that, while the Bank of England was increasing the quantity of money by purchasing it in the market, the Debt Management Office, which Mr Brown had removed from the Bank to the Treasury, was busily selling debt, so the two totally cancelled each other out, as far as one can establish. Does my noble friend agree that it is important to get the Debt Management Office back in the Bank of England so that two completely contrary policies are not pursued at the same time?

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for his questions. Funding the deficit will be critical. As I pointed out, the level of borrowing will continue to rise throughout the forecast period to £74.4 billion in public sector net debt terms in 2014-15. The scale of the task should not be underestimated. What is critical to funding the deficit in a safe way is maintaining the UK’s credit rating and central to that is having a credible plan. The foundation stone of that credible plan is the revelation today of the true state of the nation’s finances, with some decent forecasts five years out on which all else, including the funding plan, can be built.

My noble friend’s second question was about the mechanics of selling debt. The Debt Management Office operates under a clear and transparent plan, which sets out exactly what the Treasury requires it to raise in the markets each year, consistent with the Budget forecasts. So far this year, the office has carried out that plan successfully and I have every expectation that it will continue to do so.