Autumn Forecast

Lord Sassoon Excerpts

Monday 29th November 2010 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, with the leave of the House, I should like to repeat a Statement made by my right honourable friend the Chancellor of the Exchequer in another place. The Statement is as follows.

“I would like to make a Statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would also like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.

First, on the OBR’s autumn forecast—copies of which were made available in the Vote Office earlier today—we should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast that has been produced by the independent Office for Budget Responsibility—rather than conjured up by the Chancellor of the Exchequer—and made available to read two hours before the Statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the Budget Responsibility Committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Select Committee members from both sides of this House. The country can have full confidence in the independence of these members.

The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency—much of which is of the kind that was available to previous Governments but never published. I would like to thank the Budget Responsibility Committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we will now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament. While today’s figures are, of course, independent, they are still just forecasts and we must treat them with the degree of caution with which one should treat any forecast. Indeed, the OBR is explicit about that. The report illustrates the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. Indeed, the only thing that was infallible and certain was that those political forecasts were wrong.

With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing; more jobs are being created; and the deficit is falling. The OBR’s central forecast is for sustainable growth of more than 2 per cent for each of the next five years, with employment rising in each and every year. At a time when markets are gripped by fears about government finances across Europe, today we see that the Government were absolutely right to take the decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and to balance the books—something that some people repeatedly said would not happen.

Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I would also like to point out that they are very similar to the European Commission forecast for the UK, which is also published today. They forecast that Britain will grow faster over the next two years than Germany, France, Japan and the United States of America as well as faster than the average for the eurozone and the EU. The OBR forecasts real GDP growth of 1.8 per cent this year, 2.1 per cent next year, 2.6 per cent in 2012, 2.9 per cent the year after that, 2.8 per cent in 2014 and 2.7 per cent in 2015.

Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of this improvement is likely to be permanent and some of it a temporary impact of stock building. As a result, the OBR forecasts that the rate of growth next year will be 0.2 percentage points below the forecast that the OBR made in June. The OBR also predicts above-trend growth for the four years after that. The level of GDP, or the overall size of our economy, is forecast to be around half a percentage point higher next year than was forecast in June and, indeed, higher throughout the whole forecast period.

Some have made predictions of a so-called ‘double-dip’ recession. While the OBR points out that,

“growth has been volatile as this is a common characteristic of post recession recoveries”,

its central view is that there will be no double-dip recession. Its forecast is for growth next year of more than 2 per cent, and it expects that the slowest quarter of growth, in the first quarter of next year, will be 0.3 per cent, rising back up to 0.7 per cent by the last quarter of next year. The OBR also forecasts that CPI inflation will fall from 3.2 per cent in 2010 to 1.9 per cent in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.

Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to an economy where we invest and export—again, something that some people said would not happen. The OBR expects more demand to come from business investment, which is set to grow by more than 8 per cent for each of the next four years, as well as from exports, which are expected to grow on average by more than 6 per cent per year. This new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficits. We will thus bring to an end the unsustainable situation that saw families save less and less year after year so that they ended up, in the words of the OBR report today,

“effectively borrowing money to purchase increasingly expensive houses”.

The OBR has also published today a full forecast for the labour market—something that, I point out, previous Chancellors chose not to publish. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29.0 million to 30.1 million—that is more than 1 million additional new jobs. On unemployment, thanks to faster than expected growth in the economy, the OBR now expects the rate to be slightly lower this year, at 7.9 per cent instead of 8.1 per cent. Its forecast for the unemployment rate for next year is unchanged from the June Budget, at 8 per cent. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that unemployment will fall to just above 6 per cent—that is about half a million fewer unemployed people than at the beginning of this Parliament.

The trend in the claimant count is similar to that for the internationally recognised Labour Force Survey measure of unemployment, but the level is expected to be higher. The OBR explains that this revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance as a result of the new work capability assessment are modelled. In other words, more people are assumed to be flowing off ESA and on to JSA. This is a key part of our reforms to create a welfare system that encourages people to seek work and to reduce costs for the taxpayer—in short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year fewer people are expected to be on both those out-of-work benefits combined than in the June forecast.

I can also tell the House that, following the spending review, the OBR has now recalculated its estimate of the reduction in headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years. In its latest forecast, the estimate has come down to 330,000, which is a reduction of 160,000. The bulk of the revision results from the action that we have taken to cut welfare bills rather than to cut public services. Our difficult choices on child benefit, housing benefit and other benefits—each of which were opposed by the party opposite—mean fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight. The OBR also forecasts that private sector job creation will far outweigh the reduction in public sector employment. As the report says,

“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s when total employment increased by 1.3 million over six years while general government employment fell by around half a million”.

However, the most important point is that the lesson of what is happening all around us in Europe is that, unless we deal decisively with the record budget deficit, many thousands more jobs will be at risk in both the private sector and the public sector. Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than we forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70 per cent in 2013-14 and then fall to 67 per cent by 2015-16. The debt ratio is now expected to peak at a lower point compared to June—at just below 70 per cent instead of just above it.

On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,

“The Government has a slightly wider margin for error in meeting the mandate than appeared likely in June”.

For the first time, the OBR has also tested the resilience of the fiscal mandate to two alternative scenarios for the economy that critics have put forward. In both cases the mandate is met. It is clear that our decisive actions have proved to the world that Britain can live within her means. This Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment of not only the OBR but the IMF, the OECD, the European Commission, the Bank of England and all the major business organisations in this country.

Already our efforts are paying off. Today’s forecast shows that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. That is £19 billion that would have been wasted and will be saved instead.

This is an uncertain world, but the British recovery is on track. Employment is growing; 1 million more jobs are being created; and the deficit is set to fall. The plan is working, so we will stick to the course. This is the only way to help confidence to flourish and growth to return. I urge those who, when they see what is happening to our neighbours, seriously suggest that I should abandon the decisive plan that we are following and borrow more and spend more, to think again. What they propose would be disastrous for the British economy. It would put us back in the international firing line from which we have worked so hard to escape. It would mean higher deficits and jobs lost. We should reject that path.

Stability is a necessary pre-condition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade and that has undermined its ability to create jobs and grow. That is why we have already announced: four annual reductions in corporation tax; axing the jobs tax; cutting the small companies rate; expanding the loans scheme; simplifying health and safety laws; investing in science and apprenticeships; and promoting exports through trade missions.

Let me set out some of the other things that my right honourable friend the Business Secretary and I are announcing today to support growth and a rebalancing of our economy. At the Budget, I set out a plan to reduce the main rate of corporation tax to 24 per cent—its lowest ever rate—to demonstrate our commitment to tax competitiveness. I can now tell the House that the most significant programme of corporate tax reforms for a generation are today being published for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming our outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies that have left the UK in recent years. This Government, unlike the previous Government, are not content to sit by and watch our competitiveness leach away and our corporate tax base being undermined.

Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and to develop new products in this country. To encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10 per cent corporate tax rate on profits from newly commercialised patents.

We have been consulting with the business community, and I can tell the House that, as a result of that measure, GlaxoSmithKline will today announce: a new £500 million investment programme in the UK to manufacture a newly developed respiratory device at Ware in Hertfordshire; the launch of a new £50 million venture capital fund to invest in healthcare research; the construction of a new facility at the University of Nottingham to develop “green chemistry” technology; and the building of Glaxo’s next biopharmaceutical plant in this country, with sites in Northern England and Scotland being considered. In total, GlaxoSmithKline estimates that 1,000 new jobs will be created in the UK over the lifetime of those projects.

Today, we also launch a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support new growth opportunities. Too often the natural inclination of Governments is in the opposite direction: creating new regulations; putting up new barriers; and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Business Department, the Treasury will lead an intensive programme of work that will involve all parts of Government and use evidence provided by the business community and that will report by next year’s Budget. We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to: improvements to the planning system and employment law; more support for exporters and inward investors; and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will in very specific ways help particular industries. Some may be controversial if they confront vested interests. However, brick by brick, we will remove the barriers that are holding Britain back.

Finally, Mr Speaker, I would like to update the House on the international assistance package for Ireland. I attended the Europeans meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which,

“is warranted to safeguard financial stability in the euro area and the EU as a whole”.

Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation, and €50 billion will be used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism and one third from bilateral loans and the eurozone facility. The terms of the IMF loan will be determined over the coming weeks.

In principle, our bilateral loan is for £3.25 billion and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. This loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage through these difficult conditions. I should also tell the House that the eurozone Finance Ministers—without me present—discussed a permanent financial stability facility. I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism and that the European financial stability mechanism, agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.

Mr Speaker, when we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control and our country on the international watch-list to avoid. We took decisive action. Now the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, a million jobs are set to be created and our economy is rebalancing. Today we take further measures to secure growth and create prosperity. We do so based on the foundation of stability that we have now secured. Britain is on the mend. I commend this Statement to the House.”

--- Later in debate ---

[Lord Sassoon]

My Lords, it is always depressing to come back to face the noble Lord, Lord Eatwell, with his perpetual attempts to talk down the prospects of the economy. We have always said that the recovery is going to be gradual. It is on track. The recovery and the economy are borne down because they have to bear the legacy of the unbalanced growth and the excessive debt that was left behind by the previous Government. The noble Lord does not look forward; he is not grateful for the fact that the OBR has confirmed in its independent forecast that we have a pattern of rising employment in each year of the forecast. Instead, he continually wants to chip away at techie points around the way that the forecast has been produced. The transparency and the information have been vastly increased—and he chips away at it. Well, fine.

I am grateful that the noble Lord welcomes, as we all do, the £500 million new investment announced today, and I am sure that there will be a lot more to come. I was up in the north-west of England on Friday talking to a great sweep of businesses from some of the largest multinationals, like Siemens, through to very regional businesses like the Blackpool leisure centre, to family businesses such as the business that puts together Chevron motor cars. I do not recognise the picture that the noble Lord paints. These businesses are looking to the future. They recognise that there is a lot of rebalancing of the economy to do, but they are producing world-class science; the Daresbury science and innovation centre is one of the world’s great leaders. It was thanks to the foresight of the noble Lord, Lord Sainsbury, under the previous Government, that that project got going. The current Government have just announced a public-private partnership to take forward that project for the next 20 years, creating, on that one science park alone, 6,000 jobs. This is the view of Britain that I see when I get out and about, and which seems to be in no way reflected in the technical analysis of the noble Lord and some of his friends opposite.

The noble Lord talks about the fan charts. Well, we have not had the fan charts before; we now have them. He can do the analysis; he can see that the OBR has produced upside and downside scenarios. As I have said, the different scenarios that were suggested to the OBR—not its own scenarios—show that under them the fiscal mandate will be met. Yes, we have taken radical steps on welfare reform. Yes, it is correct that, by doing what we did to take more people out of welfare, we have been able to protect many more front-line public service jobs. That welfare reform is not about anything other than protecting the poor and getting a fair deal for this country. We must have a welfare system in which families who choose to go out to work are able to earn and retain more than families who choose to live on benefits. We must have a system in which housing benefit is designed so that families who go out to work are not penalised in their housing choices, compared to families who are not working.

The noble Lord talked about cuts in investment. As he may remember, when we discussed the spending review only a few weeks ago, we increased the amount of money going into public sector investment in economically enhancing infrastructure by more than £2 billion a year through the spending review period, compared to what was in the Budget and what we inherited from the previous Government. I am grateful for the work of the OBR in producing this forecast. It confirms that the judgments that my right honourable friend the Chancellor made are absolutely right. In the 2011 Budget we will update on our progress.

[Lord Higgins]

My Lords, can my noble friend confirm the rather surprising and welcome news that, despite all the cuts in public expenditure and the tax increases, growth is none the less expected to continue in the coming years, and that, similarly, unemployment is expected to fall? Having said that, I raise the position with regard to Ireland. Many people in this House believed that it was right to make Ireland a special case, but can we be sure that it is a special case and we will not find ourselves bailing out other eurozone countries to prevent their defaulting? Is it not the case that the Irish, having been bailed out, would be better able to achieve economic growth in the future if they were no longer in the euro? The reality is that the euro was designed to prevent members leaving by eliminating their own currencies. However, we need to provide some form of escape route for those countries—not only Ireland but the others on the periphery—that continue to suffer because they have an inappropriate exchange rate. Perhaps some form of alternative currency, to be used when a country wishes to withdraw, ought to be provided.

[Lord Sassoon]

I am grateful to my noble friend for pointing out that growth is expected by the OBR to continue to be above 2 per cent in every year of the forecast from next year onwards. I am happy to confirm this. Indeed, the OBR forecasts that employment will rise and unemployment will fall throughout the period.

In respect of Ireland and the eurozone, I can confirm that the UK will not be part of the permanent bail-out mechanism that the eurozone will put in place. Having said that, I do not wish to speculate about the future of the eurozone, which is very important to the UK. Europe accounts for 40 per cent of our trade and it is in the interests of this country to do what it can to support the stability of the eurozone. That does not mean that, with the exception of Ireland and its particular circumstances, we will directly support any bail-out operation.

[Lord Soley]

The noble Lord might consider recommending to the Chancellor of the Exchequer that this Statement be submitted for the Booker Prize for creative literature. It really is rather strange. In repeating the Statement, the Minister said that some people said that these growth figures would not happen. That is not true. They said that they would happen as long as we did not cut too deeply or too fast. That is what the previous Government said. The growth figures in the first seven months of this Government are down to the previous Government’s policies and the general policies within industry. The Minister might care to remember—as I pointed out a number of times when I was sat on that side of the House—that British manufacturing output was growing and that we were the sixth largest manufacturing country in the world. At the same time, French manufacturing was in decline. At the same time, President Sarkozy has expressed concern that the French might have trouble with their triple A rating.

It is also not true to say that this is the largest deficit in peacetime history. Simply typing “history of the national debt” into any search engine, or going to the library, will tell him that national debt in peacetime, as a percentage of GDP, was significantly higher through most of the 19th century—it was the way we financed the Empire—and much of the 20th century. Indeed, it was only the previous Labour Government who paid off the final debt from the Napoleonic wars and the Second World War. Can the Minister now tell us why he thinks that cutting faster and deeper in the coming year will help when we are already recovering? In a year’s time he will not be able to carry on the political, or party propaganda, line that somehow or other in seven months the Government have turned it round. They have not. That was already happening. What matters is the next 12 months.

[Lord Sassoon]

My Lords, earlier on I thought I heard the noble Lord, Lord Eatwell, describe 2010 as the year of Labour policies, but he said it so sotto voce that I left it there. The noble Lord, Lord Soley, now talks about the strength of the economy this year as being down to the previous Government’s policies. I remind noble Lords of what the OBR says about the reason why growth is now forecast by it to be much stronger in 2010 than had been previously forecast. It is principally down to the confidence of industry in restocking. That position has changed in its forecasts since June. I wonder where that confidence comes from. It comes from the fact that we came in in May and took immediate and decisive action to get the economy under control, which has resulted in British business restocking because it knows that sustained growth is coming. Let us stop going on about this and celebrate the fact that the growth is there and that industry has the confidence to understand precisely that.

[Lord Newby]

My Lords, can the Minister confirm that, at the end of this period, with job losses in the public sector being 160,000 fewer than was predicted earlier on in the year, there will in fact be over 350,000 more people working in the public sector than when the Labour Government came into office in 1997? Can he also give an estimate of how much less the reduction in private sector employment will be as a result of this revised forecast over the forecast in June?

[Lord Sassoon]

I am very grateful to my noble friend. I can confirm the figures that he quoted. The relevance is that, for all the rebalancing of the economy that we are doing and the very significant rebalancing of the welfare system, the shift of jobs out of the public sector is now very significantly below what was achieved even within the past 20 years in the early 1990s. Therefore, we should have confidence in the productive capability of the private sector to absorb that number of jobs many times over. I can only stand by the figures for the net increase of employment that are set out by the OBR in its tables.

[Lord Turnbull]

Can the Minister explain how the results of the main findings of this report were extensively reported in the press over the weekend and indeed this morning? It says on page two that the Treasury was given the final version 24 hours in advance. It leaves the rather worrying conclusion that perhaps that process, which was brought about by the creation of the Statistics Commission, has not proved as watertight as we might have hoped.

[Lord Sassoon]

I, indeed, read some of the newspapers over the weekend with interest, but the forecasts have been handed over exactly in the way that the OBR suggested. My reading of the press was that they were making educated guesses because the forecasts of the OBR in respect of this year and next year have moved much in line with market forecasts. The press are always bound to speculate in contexts such as this one. Indeed, that is what they were doing.

[Lord Campbell-Savours]

My Lords, what did the noble Lord mean when he said “in principle” in regard to the question of the noble Lord, Lord Eatwell, which he did not answer?

[Lord Sassoon]

My Lords, forgive me but which of the questions of the noble Lord, Lord Eatwell, are we talking about?

[Lord Eatwell]

It was the point about assistance to Ireland—I believe that the relevant figure is £3.25 billion—being preceded by the words “in principle”; that it would be that sum in principle.

[Lord Sassoon]

My Lords, forgive me, I should have pointed out that the details of the package are still subject to final negotiation. I guess that the lawyers have to trawl over the press release, as it were, and my right honourable friend’s statement that the loan is not the loan until it is absolutely bolted down in the formal documentation. The terms of the loan are still subject to final negotiation alongside the IMF and eurozone packages.

[Lord Naseby]

Is my noble friend aware that listening to the noble Lord, Lord Eatwell, reminds me of Cambridge in November—rather dour and foggy with not much light being shown on the country’s economic situation? Is it not a fact that, since the general election, the United Kingdom’s long-term interest rates have been falling every month and that prior to that period they were going up every month?

[Lord Sassoon]

I am grateful to my noble friend for pointing out the changed direction of travel since the new Government came in. I do not want to wade into a Cambridge argument. As a mere Oxford man, I always found my economics professors rather more cheery in their outlook, but perhaps my memory is clouded.

[Lord Deben]

Will my noble friend not allow the noble Lord, Lord Eatwell, to get away with the idea that this year is Labour’s year? The fundamental change is that we have confidence; under them, we would not have had confidence. We would not have been able to pay our bills and we would have found ourselves in much the same position as Ireland.

[Lord Sassoon]

I am very grateful to my noble friend; his analysis is absolutely right.

[Lord Myners]

My Lords, I welcome the establishment of the Office for Budget Responsibility and the independent committee. That is a significant step forward and one on which the noble Lord and the Government should be congratulated. However, we can see a contrast between a thoughtful, objective, fact-based analysis from the committee of the OBR and the spin that was placed on it by the Chancellor of the Exchequer. That is a very good and valid reason why the OBR should be invited to ensure that its own conclusions are presented to Parliament in an accurate, unbiased and objective way rather than as we have seen today.

It is disappointing to see that, even at the end of the five-year period, the output gap will still remain substantial—that is, we will still have significant unused capacity in the economy. Will the noble Lord confirm that the noble Lord, Lord Eatwell, is correct in his analysis that an improvement in the balance of payments and a decline in public sector borrowing will inevitably be associated with a significant increase in private sector debt? Is that an assumption which the Government accept and support? Can the noble Lord tell us whether the rate of interest paid by Ireland will be higher or lower than that assumed to be paid by the Government of Iceland?

[Lord Sassoon]

My Lords, it is always good to have the noble Lord, Lord Myners, present. I do not suppose that his Government ever applied any spin to any numbers. He shakes his head. Oh, well. All our memories are failing. Seriously, the difference this time is that we have a much greater, more transparent analysis of the numbers—over 150 pages of numbers. I am grateful to him for welcoming the formation of the Office for Budget Responsibility, and I hope he will be with me, giving it a fair wind in Committee on the Bill shortly.

There is a serious point here. Not only are there 150 pages of analysis and a lot more detail than was ever given before, and not only has that been available a couple of hours before my right honourable friend’s Statement, but we will be able to pick over it in the next few weeks. The OBR itself will come to the Treasury Select Committee and answer questions there and all sorts of other questions in different fora.

As to his specific question on the output gap, yes the numbers show that it will be 0.9 per cent in 2015, down from 3.3 or 3.4 per cent as it is now and from 4.2 per cent as it got to in 2009. As to the levels of private sector debt, I do not accept the numbers given by the noble Lord, Lord Eatwell; I accept the numbers that are in the OBR’s document. There will be a total leverage in the economy that is very far down on the over-leverage with which the previous Government left us.

[Lord Hamilton of Epsom]

Does my noble friend the Minister accept that one of the critical things that it was important for the coalition Government to do was to reassure the financial markets that we had a handle on the whole question of the deficit which we had inherited? That is one of the reasons—my noble friend mentioned this—why interest rates have come down since the coalition Government took over and since the new Budget was announced, and one of the reasons why the interest burden is going to be much less over the coming years.

However, is it not rather depressing that the noble Lord, Lord Eatwell, still goes on about the possibility of a double-dip recession when it is quite clear from these forecasts that the chances of that are almost nil?

[Lord Sassoon]

I am very grateful to my noble friend. I absolutely share his view both on the depressing scenarios that the Opposition choose to paint and on the overall scenario for solid growth which the OBR confirms.

As to the judgment of the financial markets, I have looked at this morning’s numbers, and the UK spread over the German 10-year Bund has gone down from 96 basis points at the date of the general election to 60 basis points today, which is a very significant measure of confidence by the international markets in our consolidation plan.

[Lord Ryder of Wensum]

My Lords, in welcoming the Statement, I declare an interest as the chairman of the Institute of Cancer Research. Is my noble friend aware that, in exports, the pharmaceutical sector is by far the most successful sector in this country? It contributes between £3 billion and £4 billion a year in surplus to our balance of trade. If, as seems likely, the Government’s new immigration policy prevents the pharmaceutical industry and research organisations such as my own from attracting the brightest and the best to this country under tier 1 and tier 2, will the Minister give me a clear undertaking, in the interests of the economic growth to which he referred, that the Chancellor of the Exchequer will have a quiet word with the Home Secretary to persuade her to change her policy as it stands at present?

[Lord Sassoon]

I am grateful to my noble friend for pointing out the huge success of the pharmaceutical and biopharmaceutical industry in this country. That is why it is so welcome to have the news today that GlaxoSmithKline is putting further facilities into this country that will only enhance the position of the United Kingdom in that critically growing sector of the economy. I am sure that the pharmaceutical companies fully recognise that, in the announcement made last week by my right honourable friend the Home Secretary, intra-company transfers of employees were taken out of the immigration cap. That means that skilled employees of multinational companies can be brought freely into this country, and for those earning more than £40,000 there will be no time limit on the length of time they remain in this country. My right honourable friend is very aware of, and has recognised, the importance of skilled industrialists and others being able to get employment in our growing industries.

[Lord Brooke of Sutton Mandeville]

My Lords, while enjoying the historical intervention of the noble Lord, Lord Soley, does my noble friend recall the remark of the Leader of the House in the wind-up to the Queen's Speech debate of 1951 when he said that all incoming Governments find skeletons in the closet, but his Government had found them swinging from the chandeliers? Secondly, does he recall the conduct of Mr Butler's economic policy between 1951 and 1955? Finally, does he remember that at the 1955 general election the Conservatives tripled their majority?

[Lord Sassoon]

Well, I have now been reminded. I was not quite around at the time, but I am very grateful to my noble friend for reminding us of these important lessons of history.

[Lord Liddle]

My Lords, does the noble Lord agree that, while any progress in rebalancing the economy is welcome, and while it is heartening to hear that the forecast for public sector job losses is lower than it was, this is contradicted by the Local Government Association, which forecasts an increase in job losses as a result of the impact of the spending round on local government? Does he not also accept that many of us on this side of the House are worried about these job losses—about their impact on regions that are heavily dependent on the public sector and about their impact on young people? Already, there are worrying signs of a rise in unemployment and inactivity among the young. Is it not disappointing that the Statement does not contain any policies that are likely to address these problems?

[Lord Sassoon]

My Lords, I would rather stick by the forecast of the independent Office for Budget Responsibility than the forecasts of others. It is the OBR forecast that is important and central today. Of course it is regrettable that any number of public sector workers—or indeed people in any other part of the economy—will lose their jobs. However, because of the numbers—much reduced in the latest forecasts—of public sector workers who will lose their jobs, not overnight but over the next four or five years, interventions that we have already announced, such as the £1.4 billion regional growth fund, are so important. We have targeted support very much at the regions to make sure that the transition between employment in the slightly shrinking public sector and employment in the strongly growing private sector is as smooth as possible.