Budget Responsibility and National Audit Bill [Lords]

Matt Hancock Excerpts

Monday 14th February 2011 Commons Chamber

[Ms Angela Eagle (Wallasey) (Lab)]

The Bill makes changes to the responsibilities exercised by the Treasury in fiscal policy making, establishes the interim Office for Budget Responsibility on a permanent statutory footing and modernises the governance arrangements of the National Audit Office. I wish to make it clear at the outset that we support the sensible changes to the governance of the NAO which, as the Minister pointed out, are proposed in parts 2 and 3 of the Bill. We do so not least because they were our reforms. As she was good enough to observe, we set them out in the Constitutional Reform and Governance Bill towards the end of the previous Parliament. As someone who has served three times as a member of the Public Accounts Committee—once in opposition, once in government and once as a Treasury Minister—I am glad to see the reforms getting on to the statute book, despite the extra obstacle presented by the intervention of a general election. I also wish to thank the Minister and the Government for the open mind that they showed to Labour amendments during the passage of the Bill in the Lords. I hope that she will show a similar approach to the amendments that we will table in Committee.

The creation of the OBR seeks to apply to one narrow part of the UK’s fiscal institutions some of the autonomy that Labour brought to monetary policy when we made the Bank of England independent—of course, we took steps to make the Office for National Statistics independent too. As the House of Commons Library has pointed out, there are examples of similar bodies in other countries. Austria, Belgium, Canada, Denmark, Hungary, Holland, Slovenia, Sweden and the USA all have some arrangements for independence in forecasting and analysis of the national fiscal situation.

The reform was initially sold by the Chancellor, with much fanfare, as one that would take the politics out of economic forecasting. In doing that, he gave the entirely false implication that previous Ministers had somehow been instructing hapless officials in the Treasury to produce incorrect but politically convenient forecasts. The reality is that the previous Government published a range for gross domestic product growth, and in all the years before the crash on only two occasions did growth fall below the range that the Treasury published. In the other years, the figure fell either within the range or above it, thus showing that we were exercising caution. We were not fiddling the figures. That level of accuracy is about all that any of us can expect from economic forecasting, which is a notoriously unreliable art rather than an objective science. Let me share a quote with the House:

“Economic forecasting, by its very nature, is subject to uncertainty. Our judgement is that, at this stage of the economic cycle, the outlook is even more uncertain than usual.”

That was the OBR’s comment on its forecasts in June 2010.

However, I have found evidence of one occasion when a Chancellor overruled the Government’s forecasters, and the House may be interested to hear about it. In 1996, the then Chancellor, who is now the Secretary of State for Justice, was reported to have increased the growth forecast from 2.5% to 3% in order to make way for pre-election tax cuts. The chief forecaster he overruled was, by some odd coincidence, Sir Alan Budd, the curiously short-lived first head of the interim OBR.

[Matthew Hancock (West Suffolk) (Con)]

I am sure that the hon. Lady was not about to move on from talking about forecasts having spoken only about growth forecasts, not about the previous Government’s dreadful record on fiscal and deficit forecasts.

[Ms Eagle]

The important thing to note about forecasts, particularly those on the tax take, is that it is difficult to be accurate with them. When I served on the Treasury Committee prior to becoming a Treasury Minister, there was comment on how accurately the Treasury was able to forecast the tax take. Clearly, it is more art than science, so the House would be mistaken to believe that because something has been forecast, it is automatically an objective certainty. Those of us who deal with these issues, on both sides of the House, know that forecasting the economy can be as uncertain as forecasting the weather—Michael Fish found out how uncertain that can be one night. Forecasts are what they are; they can sometimes be wrong and sometimes they can be accurate. I honestly think that, in general—I am not making a party political point—the Treasury has a reasonably good record on forecasting.

--- Later in debate ---

[Ms Eagle]

The important issue is how the independent forecasts interact with what happens in the economy and how that can change and be affected by the Government’s economic decisions.

[Matthew Hancock]

I enjoy debating with the hon. Lady, so I am extremely grateful to her for giving way. She has just prayed in aid the OBR, saying that it had forecast that the deficit would fall, but she has also said that under the Government’s plan the deficit will not fall. The OBR’s forecast is based on the Government’s plan, so does she agree with herself or not?

[Ms Eagle]

This is how we can get into difficulty with forecasts, which are static when they are made but apply to a dynamic situation. The hon. Gentleman knows, for example, that our debates in the House are, in part, about the effects on growth of a drastic fiscal consolidation. Our contention has always been that cutting too far too fast will suppress growth to such an extent that the deficit reductions that were hoped for will not come about. That is an essential part of the economic debate that, as far as I can see, we have been having since the Budget in June last year.

Forecasts can be affected by subsequent events and by Government policies. That demonstrates that what matters most is not forecasting for its own sake, but the judgment of the Chancellor of the Exchequer and the Government, and the extreme fiscal choices that they have made.

--- Later in debate ---

[Mr Mark Field (Cities of London and Westminster) (Con)]

Thank you, Mr Deputy Speaker, for calling me so early in the debate. As you know, I have to attend a constituency engagement for which, unbelievably, I am not well enough attired, for it is a black-tie dinner in the City of London. [Hon. Members: “Ah!”] I am supposed to be protected from that lot, Mr Deputy Speaker, so do your level best, please. I apologise that I shall not be here for all the winding-up speeches.

Listening in the House to Budgets and autumn statements over much of the past decade has been, at times, a somewhat surreal experience. Year after year the erstwhile Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), rattled out cascading figures for growth and public deficit reduction. As the hon. Member for Wallasey (Ms Eagle) rightly pointed out, the growth figures proved, at least until the middle of the previous decade, to be uncannily accurate, even often defying so-called expert opinion. However, the deficit numbers were always hopelessly, devastatingly inaccurate.

Almost comically, although this can scarcely be regarded as a laughing matter, every single Budget between 2001 and 2007 forecast that the public finances would move back into surplus in about three or four years. As time wore on, the debt and annual deficit rose inexorably as the Treasury employed smoke and mirrors to conjure the illusion of fiscal stability.

[Matthew Hancock]

The hon. Member for Wallasey (Ms Eagle) cast aspersions on the ability of my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Justice Secretary, to forecast, saying that in 1996 he forecast more than 2.5% growth. Information has reached me that in 1997 growth was more than 3%, so it turns out that he was right. What does my hon. Friend make of that?

[Mr Field]

My hon. Friend makes an extremely good point. In the one case in which the hon. Member for Wallasey (Ms Eagle) tried to argue that there had somehow been untoward behaviour by the last Conservative Government, events have proven, if anything, that they surpassed what had been expected.

--- Later in debate ---

[Alec Shelbrooke]

As the hon. Lady suggests, previous forecasts and attempts at caution came from many different angles. The public will recognise that the OBR is giving us a proper set of figures that can be relied on. If the Chancellor of the Exchequer then ignores those figures and ploughs ahead, not only would the calls from the Opposition be deafening but the public would know that the Chancellor was acting against their interests.

[Matthew Hancock]

Does my hon. Friend know that in 1995 the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) called for a panel of independent forecasters to express their views on public finances? Does he agree that it is a great shame for the nation that the right hon. Gentleman did not act on that when in government, because it might have meant that there was restraint and, in turn, that he would not have left this country in such a terrible mess?