Office for Budget Responsibility

Lord Sassoon Excerpts

Wednesday 6th July 2011 Lords Chamber

[Lord Barnett]

To ask Her Majesty’s Government what further discussions they have had with the Office for Budget Responsibility regarding their central growth forecast for 2011.

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

My Lords, there is a memorandum of understanding which sets out a framework for co-operation between the Office for Budgetary Responsibility and HM Treasury. It states that they are expected to meet regularly to scrutinise forecasting assumptions. The OBR will publish a list of contacts with Ministers, special advisers and their private offices shortly after each autumn and Budget forecast. All credible forecasters are clear that the UK economic recovery will continue. The OBR will publish a new economic forecast later this year.

[Lord Barnett]

My Lords, I thank the Minister. Paragraph 3.6 of the OBR’s economic and fiscal outlook states that,

“there is considerable uncertainty around all the forecast judgements we make”.

I know that the Chancellor cannot introduce a plan B because it would kill plan A. When the BBC last week gave him an alternative, the Chancellor said that “flexibility” was written into his plan. What does he mean by flexibility? Is it the Treasury’s special reserve? If so, can he remind us how much is in it and how much is left after expenditure on the MoD, Libya and other departments? Is that what he meant? If so, can he exceed it with the permission of the House of Commons? Therefore, is that a sort of plan B?

[Lord Sassoon]

I would love to be able to tell noble Lords what was in the mind of Robert Peston or whoever was being quoted, because it certainly was not the Chancellor. It was somebody interpreting the mind of the Chancellor.

Of course, there are certain ways in which there is flexibility within the numbers, because the automatic stabilisers operate as the economy fluctuates. In that sense there is flexibility, but I have no idea otherwise what that particular commentator had in mind. It certainly had nothing to do with use of the reserve.

[Lord Higgins]

My Lords, has my noble friend noted that the recent report of the IMF on the UK economy suggests that the Chancellor’s plan A, as the noble Lord referred to it, is on the right course? However, is not the growth forecast referred to in the Question none the less pretty disappointing? Is this not a reflection to a considerable extent of the slow rate of growth in the money supply? Given that that is so, is there not a case for considering a further extension of quantitative easing?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for pointing out the IMF’s recent assessment that endorses the deficit reduction plan, as has the Governor of the Bank of England and just about every other commentator I can think of. That is the plan to which we stick. The third Question this afternoon is on matters related to the Monetary Policy Committee and maybe it would be better to talk about monetary matters then.

[Lord Peston]

My Lords, does the noble Lord look every month as I do at an admirable document published by his own department which is a survey of all the independent forecasts made every month by the leading forecasters in this country? Is he aware that their latest figures show that the economy will grow by 1.5 per cent this year, not exactly the greatest performance ever; it is predicted to grow by 2.1 per cent next year and the medium-term forecast is approximately 2.3 per cent for the three further years? Is he aware therefore that alleged independent Office for Budget Responsibility, in the document quoted with great approval in the Budget Statement this year, predicted that for the three medium-term years the economy would grow at 2.8 to 2.9 per cent? When will he or his right honourable colleague the Chancellor go back to this alleged Office for Budget Responsibility and ask it how it managed to get the three most important numbers it was talking about wrong?

[Lord Sassoon]

My Lords, I recognise the numbers that the noble Lord, Lord Peston, quotes from the excellent monthly publication that the Treasury produces averaging out the independent forecasts. The Office for Budget Responsibility last published a forecast in March. It is obliged to put out forecasts at least twice a year. We can look forward to another one in the autumn and we will see what it has to say then. As to the extraordinary charge of the alleged independence of the Office for Budget Responsibility, I was pleased to see, only within the past couple of weeks, that the noble Lord, Lord Burns, has been appointed as one of the first two non-executive members of the office, which is a sure sign that its independence is going to be very safely guarded.

[Lord Jones of Birmingham]

How on earth do this Government intend to meet their growth forecast if they do not rebalance the economy through a quality manufacturing strategy and if at the first whiff of gunshot they still buy German trains and not those made in Derby?

[Lord Sassoon]

My Lords, first, it is not our forecast. These are the forecasts of the independent Office for Budget Responsibility. Secondly, what is very heartening in the economy is the growth of manufacturing output and the growth of exports. Since last May, manufacturing output has been 4.2 per cent higher than in the same period in the previous year. Since last May, volumes of exports to the rest of the world have been nearly 13 per cent higher than in the same period a year earlier. The private sector has created 520,000 extra jobs in the past year and that is three-and-a-half times the number of jobs by which the public sector has contracted. I really do not think that noble Lords should get pessimistic. We always said that the recovery was going to be choppy but the manufacturing side of the economy is doing very well to rebalance, which is what the economy needs.

[Lord Eatwell]

My Lords, it is very helpful for the noble Lord to introduce the idea of rebalancing. Will he confirm that a vital component of the coalition’s policy to rebalance the economy is growth in business investment? Indeed, the OBR budget forecast contains a projected growth rate of 6.7 per cent for business investment. Will he confirm that latest figures show that business investment is not growing at all, but falling by more than 3 per cent a year?

[Lord Sassoon]

My Lords, I do not know where the noble Lord, Lord Eatwell, gets his figures from. Since last May, businesses have invested £91.4 billion across the economy and that is 9 per cent higher than in the same period in the previous year. That is very positive confirmation by business of what it sees as the prospects for this economy.