My Lords, at the general election, our manifesto made it clear that sustained economic growth is the only route to improving the prosperity of our country, raising living standards, and sustainably funding public services. That is why it is our central economic mission.
On her first day in the Treasury, the Chancellor received new economic analysis from Treasury officials on the lost growth of the past 14 years. This analysis showed that, had the UK economy grown at the average rate of other OECD economies, it would now be over £140 billion larger. This could have brought an additional £58 billion in tax revenues in the last year alone—money that could have revitalised our schools, hospitals and other public services. We have therefore urgently begun the work to deliver on the mandate for change delivered by the British people at the election to fix the foundations of our economy, rebuild Britain and make every part of our country better off.
Our approach to growth rests on three pillars: stability, investment and reform. We have set out ambitious reforms, most importantly to the planning system, the single biggest obstacle to our country’s economic success. We have ended the ban on onshore wind and set out reforms to the skills system. With regard to investment, we have established the national wealth fund, committed to an industrial strategy council, and begun the creation of GB Energy. But the first, and most critical pillar, is economic stability—it is the rock on which all else must be built and the essential precondition for growth.
Over the last 14 years, with five Prime Ministers and seven Chancellors, instability has deterred investment, undermined family finances and, most importantly, held back growth. Many of the crises we faced during that time were of course global in origin—pandemic, war and an energy shock—but other countries faced those same shocks. The reason why we in the UK were hit harder than other comparable countries can be explained only by the choices made by the previous Government here at home: austerity, which choked off investment; a rushed and ill-conceived Brexit deal; and the disastrous Liz Truss mini-Budget, which crashed the economy and sent mortgage rates spiralling.
We believe that stability must begin with respect for our economic institutions. For much of the UK’s history, the strength of our economic institutions has bestowed credibility in international markets and underpinned our economic success. Politicians who seek to undermine those strengths, as we saw in the last Parliament, play a dangerous game. Under this Government, the Bank of England’s Monetary Policy Committee will continue to have operational independence in the pursuit of its primary objective of price stability, and, in line with our manifesto, we will support and strengthen the Office for Budget Responsibility, hence the Bill we are debating today.
My Lords, we thank the Minister for bringing forward this important Bill. Perhaps we should also thank the OBR for its very good work over these past 14 years. We in Parliament have been concerned about the supervision of financial regulators, and we did a lot of work last year on strengthening the supervision of other financial regulators in the Financial Services and Markets Act. Separately this afternoon, the Industry and Regulators Committee has been looking at a whole range of independent agency regulators with a very mixed performance.
It is worth pausing for a moment on the Office for Budget Responsibility itself, which is widely admired across government, in Parliament and, as the Minister says, by the current Government. It is to its credit that it managed to find a way to work closely with government, but independently and transparently. We should mark this with respect, given how stressed the government finances are.
A core objective of the OBR is, of course, the sustainability of the public finances. Perhaps we should look at how that has been since it was set up, following the 2011 Act. In 2012, public sector debt to GDP was 74%. One way or another—by spending the fiscal headroom across various Governments, and following the different issues that arose—we are now at 98%, which is a rise of around 2% per year in debt to GDP. This kind of budget responsibility is becoming almost unaffordable to the public exchequer, and things will have to change.
They will have to change because the scale of public spending—to the tune of £1 trillion a year—requires very good forecasting, and some of the forecasting that underpins this tight nexus between the Treasury, the OBR and their own reviews has been challenged. The OBR substantially missed the inflation change; lots of other agencies missed it—less in the private sector than in the public sector—and that is a problem because it hints at a closeness between the OBR and the Treasury because it was agencies of government that all missed the inflationary change. The OBR reviews its own forecasting very carefully, so when it reviews that error, it will tend to look at supply shocks in Ukraine and downplay quantitative easing and rates. That is one area of weakness, but there are others that will affect this concept of the fiscal announcement.
My Lords, this is a sensible Bill to strengthen a sensible institution. The creation of the Office for Budget Responsibility, together with the granting of operational independence to the Bank of England, has transformed macroeconomic policy-making in the UK, and it is no coincidence that the premium the UK has had to pay on its debt, relative to its G7 partners, has declined over the last 25 years.
Economic forecasting is a thankless task. Forecasts are invariably wrong. The late Denis Healey’s commented that he would like to do for economic forecasters what the Boston Strangler did for the reputation of door-to-door salesmen. In an ideal world, forecasts would not be necessary. However, Governments have to plan public spending and the taxes necessary to pay for it. They need to do so over the medium term to better understand the implications for borrowing and the debt market. Somebody has to make the projections on which the decisions that determine the well-being of the nation are based.
Over my career at the Treasury, I worked on well over 60 fiscal events. For over 50, the Chancellor determined the forecast. It is fair to say that, on the vast majority of those occasions, the Chancellor did not seek to interfere with the forecast that Treasury officials presented to him. Even then, he often had to resist pressure from the First Lord of the Treasury to raise the growth rate just a little to make tax cuts or public spending increases more “affordable”—I emphasise the inverted commas surrounding the word affordable.
Whether or not Prime Ministers or Chancellors interfered, the perception of the markets was that they did. The result was that the forecast’s credibility was always called into question and that the taxpayer had to fund an interest rate on government debt that was slightly higher than it needed to be. Two years ago, that term came to be known as the “moron premium”. I emphasise that the OBR is no better at forecasting than other institutions; the importance is that its forecasts are perceived to be unbiased, and this is borne out by the evidence.
My Lords, the OBR was created by George Osborne to
“remove the temptation to fiddle the figures”.
An entirely non-political evaluation of major fiscal measures was certainly a good idea; unfortunately, it has not yet been achieved. The failure to attain political independence may be attributed to two elements that are not dealt with in the Bill yet are essential to its purpose.
First, key inputs to the OBR’s work are the estimates of future spending provided by the Government. We now know that these can be politically manipulated to ensure that fiscal targets seem to be met. As the Institute for Government commented at the time of the Conservative Budget this Spring,
“the figures that Hunt announced … are based on entirely fictitious future spending plans”.
Since the election, we have learned that not only were the Conservatives fiddling the figures that they provided to the OBR, but they were concealing spending plans too. In the light of post-election findings, Mr Hughes confirmed that the OBR was made aware of the extent of pressures on departmental budgets only in late July. Happily, the Financial Secretary has just outlined the measures that are to be taken to verify the data supplied by the Government. These measures are most welcome.
The second key political element undermining the value of the OBR’s current assessments is the current formulation of the charter. The current charter embodies three targets that the OBR is required to assess; unfortunately, none of them is based on sound economics.
First, there is the objective to have public sector net debt—excluding the Bank of England—as a percentage of GDP falling by the fifth year of the rolling forecast period. As the noble Lord on the Opposition Front Bench just pointed out, this means that whenever the Bank of England sells part of its stock of government debt to the private sector, it automatically tightens the noose around government spending. An important part of monetary policy has damaging consequences for fiscal policy—how foolish is that?
My Lords, I have a number of regrets about the Bill. My first regret is that it is a money Bill. It is customary that this House does not challenge the decision of the Speaker in the other place, and I will not do so. It is not, however, a Bill that has any direct fiscal impact, but it makes changes to a body that has become an integral part of the country’s economic management. I believe the Bill would have benefited from a normal Committee, where we could have scrutinised it in detail. For example, noble Lords might recall that when income tax was first introduced in 1799, it was labelled a temporary tax, which raises interesting questions about this Bill’s exclusion of temporary measures from the OBR’s new powers.
Secondly, I regret that the Government have not taken the opportunity to ensure that the OBR’s forecasting is fit for purpose. My noble friend Lord Altrincham raised several of the issues here. On its own internal assessment, the OBR is not particularly good at forecasting. It claims, with no sense of irony, that its performance is in line with that of the Bank of England. The noble Lord, Lord Eatwell, from whom we have just heard, pointed out in his speech on the gracious Speech in July that the OBR was set up to reinforce austerity and is ill-suited to underpin the Government’s growth ambitions. In the same debate, I argued a similar point: the OBR does not use dynamic modelling, so growth measures will struggle for a full evaluation in the OBR’s calculations. These areas would have been a better target for the Government’s reforming zeal.
Thirdly, I regret that the Bill does not ensure that the OBR operates to high standards of governance. I cannot think of another public sector body which has an executive chairman and does not have a majority of non-executive directors. Like most independent quangos, its external accountability arrangements are weak. It is quite simply dangerous to allow a public body, which can exert great influence on the Government’s fiscal policies, to exist with weak internal governance alongside weak external accountability.
My Lords, two years ago the Tory faithful showed that they had no firmer grip on reality than Liz Truss by choosing a Prime Minister who engineered her own downfall and now blames absolutely everybody else. The infamous Truss mini-Budget provoked a crisis of confidence in Britain’s public finances by sidestepping the Office for Budget Responsibility, and this Bill will ensure that cannot happen again. The financial turmoil around the Truss mini-Budget, with its reckless £46 billion package of unfunded tax cuts and cavalier attitude to government borrowing, added to the economic chaos that seven successive Tory Chancellors caused over 14 years in office since 2010, dumping an appalling legacy in Labour’s lap.
First, they left office with real household incomes lower than when they came into government and working people with the highest tax burden for 70 years. The main reason was appallingly slow economic growth, due in large part to investment being significantly lower than in other G7 economies. Had the UK economy grown as fast as the OECD average over the past 13 years, UK GDP would have been more than £140 billion bigger, providing some £50 billion of extra tax revenue for public services and lower borrowing.
Secondly, the Tories gave up their seals of office on the 76th anniversary of the NHS’s launch with more than 7.6 million patients waiting for hospital treatment in England.
Thirdly, national debt, which stood at 65% of GDP in 2010 even after the financial crisis, is now touching 100%. The Tories have also bequeathed to Labour a huge £22 billion budgetary black hole about which Tory Ministers deliberately kept quiet and with which the Chancellor is now having to wrestle. She is right to stress that 14 years of damage cannot be reversed in one Budget. The OBR estimates that the decade of fiscal austerity imposed by George Osborne and Philip Hammond added up to nearly 9% of GDP—82% by cuts to public spending and 18% cent by tax increases—equivalent in today’s terms to some £200 billion of public spending cuts.
My Lords, I find this a peculiar Bill. There are a number of odd things about it.
First, as my noble friend Lady Noakes mentioned, it seems odd that this is a money Bill. I do not challenge the decision, obviously, but it does not seem to affect the Government’s powers to raise taxes or spend in any way. I cannot help but notice that, as far as I can tell, the original Budget Responsibility and National Audit Act, which created the OBR, was not a money Bill, so it is odd that this one is. I do not question the decisions on this point but it does seem odd; I agree that it would have benefited from more scrutiny.
This feels more a constitutional Bill in some ways, but it is weak there too. The Minister billed it as a lock on government actions, and others have described it as such, but it does not actually stop the Government doing anything; it only requires the OBR to write a report if they do so, so it seems misconceived in those terms too. One has to ask what the point of the Bill is. It is, of course, a process Bill, but it is also a political Bill. It is written entirely to give an opportunity for the Government and the Labour Party to contrast their activity with the Liz Truss mini-Budget and the decisions taken in 2022. We have heard plenty of that already in this House today.
I think Labour will find two problems with that. First, as my noble friend Lady Noakes has already mentioned, the Bank itself says that two-thirds of the problem was its own mishandling of the LDI crisis. It is hard to see how, if this Bill had been in force and a report had been required, it would have had any effect on that aspect of the autumn 2022 problems. The other problem that the Government will find is that the world does move on. Their own so-called fiscal black hole, which they have already spent a large time creating, is where attention will move. They may regret this Bill before long, to judge by the Niagara Falls of public money that seems likely to pour out of the Treasury in the months and years to come.
My Lords, I welcome this Bill, short though it may be. We have already heard different views of the Liz Truss mini-Budget. I would merely say that it does seem advisable to try to thwart cavalier, determined efforts to avoid scrutiny by the OBR; it makes one slightly suspicious. However, the OBR can only be as effective as the information with which it is provided. It should be a cause of concern that the OBR chairman, Richard Hughes, has intimated that he was not kept fully in the picture towards the end of the previous Administration. We need to be very wary about a repeat of that.
I believe the whole basis of government accounting is flawed. It focuses solely on the short term, to the detriment of the country’s longer-term interests. Take the current controversy over the winter fuel payment. I will not enter into the rights and wrongs of that decision—we have already heard about those today, and will hear a lot more—although it seems to be a very costly exercise in terms of political capital, for very little financial gain.
However, the £22 billion black hole that we keep hearing about that the Government intend to fill, in part with the proceeds of cutting the winter fuel allowance, is actually more of a bottomless pit, for a major contributor to that £22 billion is the pay rise for public sector workers. That pay rise brings with it huge ongoing costs that do not feature because public sector pensions are not provided for. That is a massive obligation which is simply swept under government carpets. According to the whole of government accounts, public service pensions are the largest single liability on the Government’s balance sheet. In 2021-22 they were calculated at £2.6 trillion—greater than the national debt.
The idiocy of this system of accounting was highlighted in a recent article by John Crompton, a former investment banker who has also done three stints at the Treasury. He suggests that the latest public sector pay awards, cited as contributing £9.4 billion to that black hole, could also bring unfunded liabilities of between £3.5 billion and £4 billion every year. Crompton calls this treatment of government liabilities “downright misleading”, and I am afraid it is. The short-term saving from cuts such as the winter fuel allowance will be wiped out year after year by numbers that do not appear in the accounting at superficial levels.
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The OBR was, of course, introduced by a Conservative Chancellor to deal with a lack of independence in forecasting and the problems that had caused. It was a commendable move, bringing greater transparency and independent scrutiny to fiscal policy. But while the previous Government then went on to undermine it—Liz Truss notoriously saying that she wanted to
“see the back of the OBR”—
the Labour Party continued to support it. Now, in government, we will strengthen it.
This Bill therefore fulfils a simple but important step to help restore economic stability: it brings transparency and independent scrutiny into law by ensuring that every fiscal event that makes significant changes to taxation or spending will be subject to an independent report from the OBR. In doing so, it delivers on a manifesto commitment.
Let us be clear about why this Bill is needed. While the existing fiscal framework requires at least two OBR forecasts a year, there is currently no requirement on the Treasury to subject announcements on all fiscally significant measures to independent OBR scrutiny. In effect, that means there are times when the Government can make fiscally significant announcements while opting out of both transparency and scrutiny. This was a key factor in the disastrous Liz Truss mini-Budget, which did so much damage to our economy and to households, who are still paying the price for it today.
The previous Government knew the measures they were taking were unfunded and unaffordable, but as they were not bound to a forecast, they wilfully prevented one from taking place. This absence of scrutiny was a key factor in the adverse market reaction that followed. As the now shadow Chancellor said at the time, the mini-Budget damage was in part
“caused by the lack of a forecast””.—[Official Report, Commons, 17/10/22; col. 395.]
This cannot be allowed to happen again, so this Budget Responsibility Bill takes five important steps.
First, the Bill requires that, before the Government make any fiscally significant announcement in Parliament, the Treasury must ask the OBR to prepare a report which takes that announcement into account. This builds on the existing process whereby the Chancellor commissions the OBR for an economic and fiscal forecast to accompany a fiscal event. It guarantees in law that, from now on, every fiscally significant change to tax and spending will be subject to independent scrutiny from the OBR.
Secondly, the Bill gives the OBR new powers independently to decide to produce a report if it judges the measures in a fiscal event to be fiscally significant. If a fiscally significant announcement is made without the Treasury having previously requested a forecast from the OBR, the OBR is required to inform the Treasury Committee in the House of Commons of its opinion, and then prepare a report as soon as is practicable.
Thirdly, the Bill defines a measure, or combination of measures, as “fiscally significant” if they exceed a specified percentage of GDP. The Charter for Budget Responsibility will then set the precise threshold. Setting the threshold in this way provides clarity for the OBR and external stakeholders about what constitutes a fiscally significant announcement and ensures that the Government can set it at the right level going forward, recognising economic conditions. The Treasury has published a draft of the updated charter. This notes that the threshold level will be set at announcements of at least 1% of nominal GDP in the latest OBR forecast.
Fourthly, the Bill ensures that these arrangements do not apply to Governments responding to emergencies. The Bill does this by not applying in respect of measures that are intended to have a temporary effect and which are in response to an emergency. The charter will define “temporary” as any measure that is intended to end within two years. This recognises that it is sometimes reasonable, as it was during the pandemic, for the Government to act quickly and decisively without an OBR report, if that is needed in response to a shock. Of course, in emergencies it may be appropriate for the Chancellor to commission a forecast from the OBR to follow measures that need to be announced or implemented rapidly, and that would happen in the usual way. Alongside any such announcement, the Treasury will be required to make clear why it considers the situation to be an emergency. As set out in the updated charter, the OBR will have the discretion to prepare a report if it reasonably disagrees.
Fifthly and finally, the Bill requires the Government to publish any updates to the detail of these arrangements, such as the threshold level at which they are triggered, in draft form at least 28 days before the updated charter is laid before the House of Commons. This is an essential safeguard in the Bill, preventing any future Government from choosing to ignore these arrangements by updating the charter without clear parliamentary consent. In line with this Bill, and as the Chancellor announced in July, she has commissioned a full forecast to accompany the Budget on 30 October, following the important principle that significant fiscal policy decisions should be made at a fiscal event and accompanied by an independent OBR report.
In the Chancellor’s July Statement to Parliament, and in light of the scale of the overspend left by the previous Government, of which the OBR has confirmed it had not been informed, she also announced additional measures to strengthen the fiscal framework. These require the Treasury to share with the OBR its own assessment of immediate public spending pressures, enshrining that rule in the Charter for Budget Responsibility and establishing that spending reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for departments and to bring stability to our public finances.
The changes introduced in this Bill are an important step in bringing much-needed stability to our economy. By empowering the OBR and ensuring that an independent report will accompany all fiscally significant announcements, it will improve transparency and accountability. Economic stability is central to economic growth—objectives that I hope will be shared across your Lordships’ House. I beg to move.
The OBR has struggled with basic numbers around population. It tended to underestimate population and is now scrambling to increase population in its model, which currently has a population of 57 million adults in the UK in 2029. This number is extraordinarily sensitive, obviously, for estimates of average wages and welfare spending. The OBR says that modelling those kinds of assumptions is very difficult because they are modelled off much lower levels of immigration than we are currently seeing, and these are the kind of numbers that would trigger enormously different fiscal outcomes in the Treasury/OBR model. There are other numbers in the forecast which are very sensitive, and the OBR itself mentioned this, but it is important that we reflect on this as we think about how this kind of fiscal brake might work. The OBR is modelling the expected tax take out of the economy to reach 37% of GDP in 2029. It is essential, of course, that it does reach that kind of level, but it is unknowable whether the economy can really sustain that level of taxation. It is a modelled outcome—we must all collectively hope it can work, but it might not, and therefore inherent in the actual forecasts are very significant fiscal risks.
One other area to mention in the OBR numbers that will underpin the Budget in October is the huge variable of accounting for the economics between the Treasury and the Bank of England. This is an extraordinarily enigmatic subject, not particularly well explained by the OBR itself, whereby the Bank can, at its discretion, impose costs on the Treasury which themselves could become very significant in these fiscal numbers. My question to the Minister is: what should we expect the costs of the asset purchase scheme to be between the Treasury and the Bank of England for this year? Will that be an area in which the Treasury can balance the numbers that it believes are a black hole? The kind of scale of adjustment is easily that big—for example, the Bank of England could easily stop issuing gilts for the coming months, seemingly at its discretion—so maybe the Minister could clarify that.
I end with the Chekhov question. Chekhov used to say that when you see a revolver on the mantelpiece in the first act, it will always be fired before the final curtain. I ask the Minister whether we can expect the fiscal announcement, beautifully described in Clause 1 as the “section 4(3) report”, to take place in this Parliament.
On the detail of the Bill, I welcome the Government putting a number on what constitutes fiscally significant. It may be a little on the high side—most fiscal events over the last 30 years have made a fiscal adjustment of less than 1% of GDP—but I see the problem in setting it too low and triggering an endless round of forecasts.
I also welcome the Government’s determination to improve the credibility of public spending projections. We should be in no doubt that an incredible spending forecast is the source of the problem with which the Government are now wrestling. Had the previous Government been required to populate their spending plans with policy decisions, I rather doubt that they would have announced successive cuts in national insurance contributions.
The measures set out in the Chancellor’s letter to Richard Hughes of 29 July are a big step forward: in particular, a clear timetable for spending reviews and a requirement for the Treasury regularly to update the OBR on emerging spending pressures. Allowing the OBR to publish, in effect, corrected spending plans will improve decision-making, even if it makes life more difficult for the Chancellor in the run-up to an election.
As the Government consider further reforms to the OBR framework, I encourage the Treasury to focus on another issue that also muddies the waters in the run-up to an election: the costing of opposition policies. Every four or five years, we have to go through the absurd theatre of the Chancellor of the day publishing, to great fanfare, official costings of their opponents’ policies. Of course, they are not official costings, since the assumptions are determined by Ministers and their special advisers. The Opposition are always rightly indignant at the time, claiming that the process is terribly unfair. I had to field unhappy telephone calls from shadow Chancellors from both main parties. But, once in government, parties have an uncanny knack of forgetting about the unfairness.
While the present Government are still in their early days of missionary zeal, I encourage them to resuscitate the 2015 proposal of the then shadow Chancellor, Ed Balls, to put opposition costings in the hands of the OBR, as happens in countries such as Holland. I ask the Financial Secretary to raise this issue with the Chancellor when he returns to the Treasury.
More importantly, the objective treats all government expenditure as having the same economic relevance. A crazy unfunded tax cut is assigned the same economic impact as investment in industrial infrastructure. As the Chancellor of the Exchequer argued in her Mais Lecture while still the shadow Chancellor,
“our fiscal rules differ from the government’s. Their borrowing rule, which targets the overall deficit rather than the current deficit, creates a clear incentive to cut investment that will have long-run benefits … I reject that approach”.
Unfortunately, the next objective, to ensure that public sector net borrowing does not exceed 3% of GDP by the fifth year of the rolling forecast period, is simply a dynamic version of the first objective and is, therefore, subject to the same rejection that the Chancellor has made.
The third and final objective is to ensure that expenditure on welfare is contained within a predetermined cap. One of the important operational aspects of economic policy is the value of the automatic stabilisers in the economy: when the economy booms, welfare spending automatically goes down; in a slump, welfare spending automatically goes up. The notion of a cap would emasculate the automatic stabilisers—again, a silly thing to do.
In short, none of the current objectives in the charter makes sound economic sense. It forces the OBR to make forecasts that are simply not relevant for the Government’s stability and growth objectives. It is imperative that the charter is revised prior to the Budget on 30 October. Given the requirement that revisions of the charter must be presented to Parliament 28 days before coming into effect, will the Minister tell us whether we can expect a revised charter to be presented before 1 October?
To conclude, the OBR is a very good idea, as is this Bill, but major operational aspects need urgent correction. I look forward to hearing from the Financial Secretary how these deficiencies are to be dealt with.
Lastly, I regret that the Government have used this Bill to peddle untruths for political purposes. At Second Reading in the other place, the Chief Secretary said:
“The country cannot afford a repeat of the calamitous mini-Budget of September 2022, when Liz Truss and Kwasi Kwarteng’s reckless plans unleashed economic turmoil that has loaded hundreds of pounds on to people’s mortgages and rents”.—[Official Report, Commons, 30/7/24; col. 1211.]
The Minister repeated the substance of that in his opening remarks. The fact is that interest rates were already on the way up in the fight against inflation, and they remain high for the same reason. They did spike immediately after the mini-Budget, but the Bank of England’s own internal analysis shows that two-thirds of the 103 basis points spike in the 16 days after the mini-Budget was due to the Bank’s own mismanagement of the risks inherent in LDI strategies. Furthermore, the Bank had already unsettled financial markets by failing to raise interest rates in line with the US and with market expectations. It does not reflect well on either of the Chancellors who succeeded Kwasi Kwarteng that they have turned a blind eye to these truths.
It was political opportunism that led to the creation of the OBR, and it is the same motivation driving this Bill. This is a poor foundation for legislation.
Do not forget that things could have been even worse. The noble Lord, Lord Cameron, admitted in his memoirs that, had he stayed in office after 2016, he would have pursued even more public spending cuts. George Osborne’s last Budget in March 2016 revealed plans for another £60 billion of public spending cuts, which would have brought total Tory cuts to £260 billion. Fortunately, Liz Truss lost office before she could attempt similar economic and social vandalism—but then, in this summer’s election, Rishi Sunak’s dishonest promise of national insurance cuts of £13 billion and defence spending rises of £7 billion per year would have doubled the black hole that the Chancellor discovered.
When critics claim that the Chancellor has embarked on George Osborne-type austerity, she is absolutely right to insist that giving public sector workers their first real-terms pay increase in 10 years is certainly not that. Osborne’s first Budget announced a two-year public sector pay freeze. Jeremy Hunt now claims:
“Labour have inherited a growing and resilient economy”.
He says that because UK GDP grew in the first half of this year, yet GDP shrank in the second half of last year as the economy sank into recession. We may have stopped going backwards but we are not yet any further forward than we were an economically destructive and financially irresponsible Conservative year ago. The Bank of England now expects growth to slow, not speed up, in the third and fourth quarters of this year—another sign of Tory failure and nothing like the rapid turnaround that we experienced under the last Labour Chancellor in 2009 as the economy recovered from the terrible global financial crisis.
This Bill is designed to block any repeat of such Tory antics and to establish a future under Labour of economic growth and stability. It will not be easy, but thank goodness we have grown-ups running the country again.
I do not think that we are meant to take this Bill seriously. Outsiders recognise that; the IFS itself says that the proposal is “largely performative”. Even the Resolution Foundation describes its impact as “relatively small”. The real impact of the Bill will be to reinforce the position of the OBR in the constitution, but I am doubtful about that for two reasons.
First, for some of the reasons that have been said, the OBR is not a particularly effective institution. It clearly reinforces the Treasury view of the world. It has a poor record, as others have said and as it itself acknowledges. It is negative about Brexit and it repeats the zombie 4%-cut-to-GDP figure that was produced six years ago on the basis of reports put together before we even left the EU. It is doubtful about incentives and what makes a free economy tick. Forecasting is difficult—people bring their priors to it—but the answer is not to do it better or do more forecasts; the answer is to remove the privileged status of the OBR and the forecasts it gives in our economic decision-making. That is the first reason.
The second is that this Bill forms part of the tendency over the past 20 to 25 years to tie down elected Governments with Platonic guardians who think they know better than Governments. This is an intellectual error that began, reasonably enough, with Bank independence in 1997, but it cannot be extended to every single situation. Just because it is good for running monetary policy does not necessarily make it desirable to have independent controls on fiscal policy, to give independence to one regulator after another or to give independence to institutions with wider economic policy effects, such as the Climate Change Committee and many others. These are very different things. You cannot solve the problems that the country faces by constantly giving further independence to unelected institutions and bureaucratic processes.
I am afraid that this error has time to run yet. It is sapping democracy and will make it more difficult to deal with new economic challenges. I hope that, one day, we will reverse this trend and look at this panoply of constraints on government action with a much more sceptical eye.
So, while I welcome the Bill as a minor improvement, I ask the Minister whether he agrees that the time has come for a much more radical rethink of government accounting. Yes, cash flow is important, but, as every household knows, concentrating solely on income and expenditure is not the way to build a healthy economy. Major infrastructure projects, such as those cited by the noble Lord, Lord Eatwell, are essential. Cancelling them because of a short-term need to cut expenditure, as this Government have done, may be foolhardy. A proper net worth finances method of accounting, dealing with government expenditure over the longer term, would enable a much more effective long-term view to be taken of the costs and benefits of investment. A change to a more sensible fiscal framework would make for much healthier, better management of public finances, and it would contribute to the growth that we absolutely need.
The Minister explained that the Government have three aims as far as the Bill and the economy are concerned: stability, investment and reform. I ask him to really be serious about reform.