Charter for Budget Responsibility

Debate between Stewart Hosie and Jonathan Edwards

Tuesday 13th January 2015 Commons Chamber

[Jonathan Edwards]

Is it not the case that we are living in very uncertain times in terms of the global economy? As the right hon. and learned Member for Rushcliffe (Mr Clarke) said, we could have a Greek exit from the eurozone in a matter of weeks, with all the turmoil that would create for the eurozone, and the direct impact that would have on the wider UK economy. With that in mind, would it not be more advisable and wiser to have a more flexible approach to fiscal policy?

[Stewart Hosie]

That is absolutely right. I will answer that question directly. Instead of the provisions in the charter, we should be tackling the deficit reduction and the debt reduction in a different way. It should not be a fixed-term approach; it should be a principles-based approach based on the medium term. It has been proven to work in New Zealand, and I want to refer to the way in which it goes about that. It says that the first principle should be about reducing debt to a prudent level, where the Government of the day specify what is or is not prudent, depending on the circumstances that they face—precisely the point that my hon. Friend made. The second principle should be that once debt is reduced, the Government should maintain a balanced budget over the medium to long term. That would not prevent any Government from implementing the steps they believe are necessary to achieve the long-term objective of having a prudent level of deficit, but it would mean that it would happen, on average, over the medium to long term, rather than arbitrarily specifying one cycle or one Parliament.

The third principle says that the Government should achieve and maintain a level of net worth that provides a buffer against unforeseen future factors. The fourth principle calls on the Government to manage fiscal risks prudently, and the fifth is that the Government must pursue policies consistent with a reasonable degree of predictability about the level and stability of tax rates. That is incredibly important, because the tax system, tax rates and tax certainty, which have not yet been mentioned today, are a vital component of fiscal stability and fiscal responsibility. In the sense that we have seen tax yields reduce, it is all the more important to get that bit right.