Budget Responsibility Bill

Stella Creasy Excerpts

2nd reading
Tuesday 30th July 2024 Commons Chamber

[Gareth Davies (Grantham and Bourne) (Con)]

Madam Deputy Speaker, congratulations on your election. Let me take my first opportunity to congratulate the right hon. and hon. Members in the new Treasury ministerial team, who have taken up some of the best jobs in government. I loved every minute of my time in the Treasury, even when I had to come to this place to face my shadows. I will always be grateful to the officials who so ably supported me and the team.

As the Member of Parliament for Grantham, the home of our country’s first female Prime Minister, I congratulate our country’s first female Chancellor. It is right that we highlight that. While the two are not politically aligned, we can all recognise when a ceiling has been shattered and no matter who is breaking it, we certainly recognise that on this side of the House.

The Bill before us seeks to amend the Budget Responsibility and National Audit Act 2011—a Bill, introduced by a Conservative Chancellor, that created the Office for Budget Responsibility. The Bill should be understood in that context, building on a previous Bill that replaced the system where His Majesty’s Treasury would produce its own forecasts and the Chancellor of the Exchequer would essentially mark their own homework. Back then, that was an essential piece of legislation, given what had gone on before. Between 2000 and 2010 the then Labour Government’s so-called forecasts for growth in the economy were out by an average of £13 billion and their forecasts for the budget deficit three years ahead were out by an average of £40 billion. Their forecasts therefore lacked any credibility at all.

It was not just their forecasts that led to the creation of the OBR; it was their management of the economy. Much has already been said by the shadow Chancellor about the higher inflation, higher deficit and higher unemployment that the Conservatives inherited from Labour in 2010. What is, however, sometimes forgotten is that total public spending accounted for almost half the national income when Labour last left office. Welfare spending ballooned by a staggering 45%, and that runaway spending meant that we inherited the largest budget deficit of any economy in Europe with the sole exception of Ireland. The idea that Labour has an unblemished record when it comes to the public finances is, therefore, plain wrong. We Conservatives created the OBR, in Parliament, to guard against Labour’s fiscal unaccountability and recklessness with the public finances. We continue to support the role of the OBR in providing open, fully transparent, independent forecasts for all to see, no matter who is in government.

It was genuinely good to hear that the Chancellor recognised the importance of the OBR when she said that because of the OBR, in her words,

“You don’t need to win an election to find out the state of public finances.”

She was absolutely right about that. That is why yesterday’s supposed revelations simply won’t wash. In fact, if she is so supportive of the OBR, I ask a simple question: why was yesterday’s statement based on internal Treasury analysis, not OBR analysis? Surely if they are very supportive of the OBR they would have asked the OBR to conduct the analysis. The OBR has always said that it would be ready to produce analysis at any time, on short notice.

That was yesterday, and today we are here to talk about the Bill before us. While we are supportive of the OBR, we think it is right that the House should consider a number of concerns that we have, on which we will seek clarification. First, the Bill will require the Treasury to request, and the OBR to produce, a report on fiscally significant measures announced by the Government, with the exception of temporary, emergency measures. The definitions of these terms—"fiscally significant”, “temporary” and “emergency”—will be set out in a charter for budget responsibility as the Chief Secretary outlined. The draft charter text, published alongside the Bill, deems measures to be fiscally significant if they cost the equivalent of 1% of GDP in any financial year. It defines as temporary any measure intended to end within two years, and the draft charter text gives the OBR discretion to reasonably disagree with the Treasury’s interpretation of what constitutes emergency.

Despite some of the rhetoric, we note that nowhere in the Bill or the surrounding documents is the OBR empowered to prevent a Government from taking fiscally significant action of any kind. The effect of this Bill is to ensure that an OBR costing accompanies any fiscally significant action the Government take—nothing more, nothing less. The way in which the Chancellor described this Bill as a so-called lock to prevent certain activity is—to be generous on my first outing—overly ambitious. The Bill is described as introducing a fiscal lock, which the Chancellor promises will prevent large-scale unfunded commitments, but that is not what it does. There is no fiscal lock, and if anything, it is a forecast lock. The potential impact of the Bill is so limited and specific as to lead some to wonder whether, for all the animated hyperbole of the Chancellor yesterday, this is the prioritisation of gimmicks over governing, despite what the Prime Minister said on the King’s Speech.

Secondly, and I say this genuinely constructively, the Government need to be better prepared to clarify what is meant by “emergency”. The draft charter gives the OBR the power to reasonably disagree with the Government’s interpretation of what is an emergency, but this raises questions about whether the OBR is equipped to make such a decision in the first place. What counts as an emergency should mostly be clear-cut, but what about instances that are less obvious, or when unforeseen circumstances come down the track? The OBR would then be straying into political decision making, which would rightly raise constitutional issues. Even if it is ultimately for Ministers to decide on such matters, any resulting disagreement between the Government and the OBR about whether the circumstances amount to an emergency could undermine the credibility of the Government, the OBR or both.

[Ms Stella Creasy (Walthamstow) (Lab/Co-op)]

I am genuinely perplexed whether the hon. Gentleman is with the former Member for South West Norfolk, who wanted to see the OBR abolished and not part of any decision making, or feels that the Bill does not go far enough. Either way, does he recognise and accept, as thousands of mortgage payers in this country now do, the disaster of the previous Conservative Prime Minister’s Budget, the impact it has had and the need never to go back to those days?

[Gareth Davies]

We support the OBR. I have been clear on that. We created the OBR, so to suggest that we do not support it is incorrect. I would just pull the hon. Member up on some economic facts. The reason interest rates were so high and mortgages went up is that we faced a global challenge, which this Government will now experience. In office, the Government have to deal with events, and what caused inflation around the world was two things: the war in Ukraine, which pushed up wholesale gas prices to record highs; and the fallout from a once-in-a-century pandemic that the Labour party seems to have forgotten about. Those two factors resulted in 11% inflation, which resulted in the Chancellor and Prime Minister at the time prioritising bringing down inflation, which we did, to 2%. We have now handed this Government 2% inflation, half the deficit we inherited in 2010, half the unemployment and the fastest growth in the G7, so it is a little bit rich to suggest that we take lessons from the Labour party on economic performance.

Our third and final concern—we have others, but I am in keeping this short on Second Reading—is that, in the event that the lock is triggered, the OBR does not need to produce one of its standard reports, even though the Treasury, under the Bill, is required to request such a report to avoid breaking the lock. The Bill creates, therefore, the possibility of an entirely new OBR report, which is not envisaged by the original Act. I would be grateful if the Exchequer Secretary explained that and what it means in practice when he sums up. Although standard OBR reports must be published, it is not clear whether that applies to other reports that the OBR may prepare. If this requirement does not apply, are the Government happy to give the OBR the power to decide whether its costings are published? That is potentially very concerning for transparency.

The official Opposition look forward to more detailed scrutiny of the Bill and its practical implications. Be in no doubt: we support the OBR, which we created to bring in much-needed transparency to our fiscal framework after years of fiscal folly and false promises by the Labour party. At the same time, let us not pretend that the OBR should be the ultimate judge of good policy, that nothing bad can happen under its watchful eye and that nothing good can happen beyond its gaze. Labour Members know this: it is precisely what they argued 15 years ago when we first debated the Bill that led to the OBR’s creation. The OBR should not become too political. It should be a referee, not a player, in the fight for fiscal accountability. In the end, we stand by the principle that the British people, through their elected representatives, should always have the deciding say on public policy. We look forward to debating this further in the months ahead. We will not be voting against this Bill on Second Reading. I look forward to the debate.

[Ms Stella Creasy (Walthamstow) (Lab/Co-op)]

I feel as though I am almost in Alice in Wonderland world when I listen to the Opposition response to this legislation. I certainly feel concerned that they, with the Cheshire Cat and possibly following the Queen of Hearts, might have been trying to pretend that their previous Conservative Prime Minister did not exist, or indeed that the former Member for Spelthorne was never ever the Chancellor. Those of us paying for a mortgage—and I declare a direct interest—know all too well that they were in charge and about the damage that they did with their disastrous mini-Budget, which is why this legislation is so important.

I would wager that that what their constituents would tell them if they suggested that the economic harm the previous Government did to this country, for which we will all be paying for generations to come, was solely to do with Ukraine or the pandemic. That mini-Budget was a political choice, but worse than that, it was a politically uninformed choice. The Government at the time consciously and purposefully made the decision on ideological grounds to press ahead with a Budget that cost 1% of our GDP, and to hell with the consequences, as we have all seen. That is why this legislation is so important.

I will always welcome a sinner who repenteth, so I am pleased that the shadow Minister recognises the value of independent scrutiny and, indeed, urges us all to go further. We will always welcome such an approach, because it is right and because our constituents deserve better, because we can see how bad things are and how broken this country is. What this Bill has at its heart are the funds to repair the damage done by the previous Administration. That is why the Chief Secretary to the Treasury is here today with this Bill to be clear with us about why it matters, why we put things on the books and why sound money is at the heart of it.

The markets did not react by accident and put up all our mortgages; they saw with terror the damage that bad leadership in the Treasury can do and have accordingly asked us to meet that challenge. Frankly, there is nothing progressive about crashing the economy, and that is exactly what the previous Government did. By putting on the record the need to report independently on fiscally significant measures, we are starting with a clean sheet and saying that we will not take such a reckless approach with other people’s money. At the end of the day, that is what this is: the tax revenues that are generated are the moneys of our constituents, and it is therefore right that we are careful about how we administer them.

However, I recognise that there are challenges in this legislation. I am speaking today because I hope to hear from the Ministers on the Front Bench further clarity about the concept of “fiscally significant”. As somebody who has always liked to be hawkish about public money, I think it is important that we are clear where we are investing, and I very much urge the Treasury to think about investing to save. I see in our broken society the damage that is done by poverty, poor public services and the higher costs that come with that, so I want us to be clear about the funding we have, where it is coming from and why every penny matters.

[Mr Mark Francois (Rayleigh and Wickford) (Con)]

As the hon. Lady knows, the new Government have intimated that they may decide to mirror much new EU legislation, which could well have budgetary consequences. She and I have not quite always seen eye to eye on Europe, but does she agree, in that context, that it is actually a bad mistake to do what the Government want to do tonight and abolish the European Scrutiny Committee?

[Ms Creasy]

The right hon. Member pre-empts many of my concerns. There is a very strong story to tell about good fiscal discipline, but it is not possible to do that independently in a modern, global economy, so the scrutiny that we can provide in this place of a whole range of regulations does matter. Those include financial regulations—I think particularly about the City and issues around a financial transaction tax, for example. I have not yet convinced him of the merits of working more closely with Europe, but I am confident that one day we can do so. I agree with him, however, that this House should be fully part of that, just as I believe in the principles behind the Bill—that disinfectant comes from transparency and our ability to see what is going on. That is why the Government are so right to bring this legislation forward.

Let me move on to some areas where it is right to ask what we mean by fiscally significant. The right hon. Member and I might disagree about the deal we do in resetting our relationship with Europe, but there can be no doubt that that will have a clear economic impact on this country. I think of the hauliers who are considering whether they will give up bringing goods to the UK because of the Brexit border tax. The previous Government admitted that that measure was inflationary and could have a significant impact not just on our food security, but on our economy, pushing up the cost of living. Many of our constituents know that there is still too much month at the end of their money, and we should challenge any measure that makes that harder. That will also inflect our tax take.

The point I am getting to is that if we are talking about measures that are so fiscally significant that they count for 1% of GDP, a trade deal would easily meet that criterion. We need to be clear in the Bill what we ask of the Office for Budget Responsibility—which, after all, has provided evidence on the impact, for example, of leaving the European Union—and whether we consider its role in such matters. If we are going to put everything on the books, let us make sure that the public understand fully the decisions that we make and where the information comes from.

Another area in which we as a House need to act is our outgoings, especially when we are being asked to make very difficult choices about some of the most vulnerable in our communities, such as people who rely on welfare, or pensioners who rely on the winter fuel payment. We have to be honest: this country is pretty much bankrupt as a result of the previous Administration. If somebody in that dire financial position came into one of our surgeries, we would sit with them and talk about a debt relief order. We would look at their costs and particularly at consolidating the debts that they may have.

Many colleagues here will know that for many years I have been concerned about legal loan sharking. That is not just in people’s private lives, but in the public sector, and I consider the private finance initiative to be the legal loan sharking of the public sector. If we are talking about fiscally significant measures—measures that meet the test of £28 billion—we should consider that we have £151 billion of outgoings committed to private finance companies in this country, against £57 billion-worth of assets. Most people can see that those figures do not add up.

Local authorities spend around £18 billion every two to five years on PFI repayments, of which about £4 billion is interest costs. That would suggest an average interest rate of around 35%. If somebody came into a surgery with a loan at a 35% interest rate, we would encourage them to go to a debt relief order. Our country is no different, and this matters because, individually, local authorities might not meet that fiscally significant threshold, but collectively, they will for us. We are not going to let hospitals and schools go bust and go out of business. Parklands high school in Liverpool was built under PFI. It was closed because there was not a demand for the places, but Liverpool city council is still playing £12,000 a day for that closed school. It has repayments of £42 million left and the company that owns it is making a profit of around £340,000 a year from the scheme.

Private finance companies are on our books, and they should be on our books nationally. They should be considered fiscally significant. We can do things to consolidate those loans and to reduce the outgoings that will come. My contribution to the Bill and the amendments that I might table, depending on what Ministers say, will relate to the fact that I think we need to be clear that everything that is fiscally significant—decisions that we might not proceed with and ones that we do—should be subject to that level of scrutiny.

The National Audit Office has given us plenty of information about the poor value for money of private finance initiatives. Many Members who have these schools and hospitals in their constituencies will have seen this at first hand. There is evidence from the Department of Health and Social Care about what could be done to consolidate loans that probably would generate savings that would be fiscally significant, when we talk about the sums involved. It would be fantastic to see the Office for Budget Responsibility pick this matter up as part of our knowing how much we have to pay out as a country; how much of a contribution we need to make. This money is going to private companies that, on the whole, are not paying tax in this country, so it is not generating revenue that can go back into paying for the repairs that need to come.

The previous Government started to look at these issues and then walked away. I know that this Government, with their commitment to fiscal discipline and fiscal transparency, will want to be open about the benefits, costs and fiscal significance both of the trade deals that we might make and of private finance initiatives. I look forward to hearing from Ministers about that. This is a very different world—[Interruption.] The shadow Minister is smiling. I am sure that he misses his colleague from Spelthorne, but I know he will not miss the opportunity to say sorry to all our constituents for the mess we have been left in and the reason why we need this legislation on the discipline of the OBR, and for the failure to tackle the long-term problems that have left legal loan sharks and poor trading opportunities for our constituents, because they are going to pick up the pieces for generations to come.

[Madam Deputy Speaker (Judith Cummins)]

I call the Liberal Democrat spokesperson.