|Previous Section||Index||Home Page|
At the end of the second world war, Britain's cumulative debt was 250 per cent. of GDP. Our public finances were in a truly frightening position, but the judgment was made-I suspect that everybody agrees that it was the right judgment-that it was worth putting ourselves in such straitened circumstances because the prize of winning the war was so great and the downside of losing so immense. We had to put normal economic considerations to one side to protect the freedom and independence of our country and all the values that we hold important. Obviously, I hope that nothing that serious happens between now and 2016-or, indeed, ever-but were something serious to happen to us as a country, how could we possibly proceed with the assumption in the Bill that the deficit would be cut year on year, and cut in half by 2014?
My other example, which is perhaps more likely, was about re-entering recession between now and 2014 or 2016, depending on which of the two time scales in the Bill applied. What would happen? Plenty of eminent economists believe that there is a risk of a so-called double-dip recession-that we will not recover as the Government forecast, that there is genuine potential for the structural damage to our economy to prove lasting, and that growth will be weak and even negative. If there were some wider international dimension-we all acknowledge the international dimension to the recession out of which the world is now pulling-that caused shock waves throughout the developed world and economies, it is possible that, even if the Government or any subsequent Government acted with great fiscal restraint, we would still be thrown into another recession, due not to the decisions made in the House or by Ministers, but perhaps to seismic events in one of the big economies elsewhere. In that case, the measure, which requires us to halve the deficit-not simply the dimension covered by amendment 1, which the Government defeated-would put us in a ruinous position if we abided by it while trying to grapple with serious world events.
Mr. Andrew Love (Edmonton) (Lab/Co-op): Does the hon. Gentleman agree that a double-dip recession is most likely if we remove the fiscal stimulus in 2010, when growth is forecast to be a very sluggish 1 to 1.5 per cent, and when no one could consider the recovery secure?
Mr. Browne: The hon. Gentleman makes a slightly different point-he is talking about the timing. As there is a reasonable consensus in the Committee, including all but one or two Labour Members, that we would like the deficit to be lower than it is at the moment, the debate ends up being about timing, rather than whether we aspire to cut the deficit.
There is a range of views on timing. For what it is worth, the Liberal Democrats' view is that it should not be political-it should not take account of the requirements of a general election campaign in the next few months. We need to bear in mind a range of economic factors, including Britain's creditworthiness and unemployment, before we can make meaningful decisions about the appropriate speed with which to reduce the deficit. On that basis alone, we are uncomfortable with, and opposed to, this legislation, leaving aside the Alice in Wonderland nature of the deliberations.
Lembit Öpik (Montgomeryshire) (LD): Is my hon. Friend basically saying that there is no way we can legislate for unforeseen circumstances? Does it strike him as somewhat ironic that the very reason why we are having this debate in the first place is that the Government did not see the recession coming?
I cited the examples of a huge threat to national security or a double-dip recession, but we could doubtless think of other exceptional but nevertheless imaginable circumstances in which the straitjacket of this legislation would simply not be in our interests. When that problem came up on Second Reading, the Chancellor, with a waft of his hand, said, "Oh well. In those circumstances, we'd just ignore it." I am paraphrasing, but I should have the exact quote-it might have been still more casual, something like, "Of course we wouldn't be bound by this legislation in such circumstances." That prompts the question why we have been invited to spend hours in the Chamber when the legislation, as I understand it, is in practice a set of guidelines to which Ministers can adhere if they find that convenient, but ignore if that is a preferable option. Of course, the Government can do that in any case. If the Bill can be discarded on a whim, and if there are no sanctions for doing so, why have it at all?
On that basis, I tabled amendment 4, which would allow the provisions to be suspended for one year, which could of course happen repeatedly if that was felt necessary. I have sought to introduce a procedure that would give the Chancellor's casual observance a legal basis. I am not in favour of the Bill-I think it is utterly absurd-but if we are going to have it on the statute book, and if the Labour Members packing into the Chamber to weigh up the arguments cannot be persuaded of the case that I and others are making, we might as well have a measure that works and that is at least vaguely credible in terms of its practical application.
To have no contingency, which is the case at the moment, seems ridiculous. My hon. Friend alluded to the fact that that is particularly so because the Prime Minister who claimed to have abolished boom and bust has now presided over the biggest peacetime deficit in our history, or certainly for a very long time-I have actually been told that our deficit might have been greater in 1921. He is now introducing legislation that seems to be predicated on the assumption that, despite all evidence to the contrary, boom and bust has been re-abolished and there is no danger we will encounter it again.
Of course, that is not the Government's position in practice. The Chancellor announced in 2008 that he would break the Government's much championed golden rule, and when he was asked why he was doing that, he replied:
"To apply these rules rigidly in today's changed conditions would be perverse."
Amendment 5 would require the Treasury to report on, and the House to approve, the accuracy of the public sector net borrowing projections that the Chancellor
made in the Budget 2008, the pre-Budget report 2008, the Budget 2009 and the pre-Budget report 2009. The amendment may appear, on first inspection, to be somewhat tangential, but I tabled it to emphasise the incompetence of the Government in their forecasts and management of public sector net borrowing, and ask the valid question why the Government expect us to have any faith or confidence in their ability to make these projections through to 2016.
In previous debates, the Chancellor has said-I paraphrase slightly-that although the forecast for borrowing for this year was £175 billion and has now gone up to £178 billion, he has always made it clear that the figure would be roughly of that order and nothing surprising has happened. But that is not the case. The latest estimate for the deficit for this financial year, which ends in a few months, is £178 billion. In the Budget in 2008-less than two years ago-the Chancellor predicted that borrowing this year would be £38 billion. He was out by £140 billion. He then revised the figure upwards in the PBR at the end of 2008 to £118 billion. In the Budget 2009, only a few months later, it was up to £175 billion-a £57 billion increase in only a few months. Then it went up again by another £3 billion in the PBR only a few weeks ago.
My point is that the Government's projections for the public finances were emphatically wrong, out by £140 billion. In the Budget 2008, less than two years ago, the Government prediction for borrowing in 2010-11 was £32 billion. They are now predicting that it will be £176 billion. For 2011-12, the Government predicted £27 billion of borrowing, and now they predict £140 billion. The Government's estimates are way off beam. They underestimate our borrowing requirements by almost £3 billion a week. Now they seek to give us a projection of their intentions right through to 2016 and invite us to take that seriously.
As I said on amendment 4, we do not know what will happen between now and 2016. We must have a plan in place with some intelligent, sensible guidelines that take account of the state of the economy and the need to reduce our huge deficit as quickly as we can, consistent with not damaging the economic recovery or economic growth and with maintaining the level of public services that people in this country want. It is a balancing act. A quarter of public spending is unfunded at present. There are no simple solutions and we are in a very difficult position, but the idea that there is some magic formula that can be put forward in a six-clause Bill, when the Government cannot even work out two years in advance their borrowing requirement, is entirely fanciful.
On that basis, I hope that the Committee will debate with enthusiasm, and support, amendments 4 and 5. Depending on what the Minister and others say, I might seek permission to press amendment 4 to a Division.
It is a pleasure to speak on this group of amendments, which essentially brings together various ways of delaying the Bill's implementation and assessing it in the light of various matters. The hon. Member for Taunton (Mr. Browne) set out his thinking behind
amendments 4 and 5, and I will say a word or two about that in a moment. The grouping also includes new clause 16, tabled by the hon. Member for Dundee, East (Stewart Hosie), and new clause 1.
Amendment 4 proposes to delay the operation of the Bill. I have much sympathy with the thinking behind the amendment as it was set out by the hon. Member for Taunton, although I am not entirely sure whether it would necessarily work as he would like and allow the disapplication of the Bill for a year. I will be interested to hear what the Minister has to say about that. I was confused by the words,
"beginning with the coming into force of the order."
On amendment 5, I have a lot of sympathy with what the hon. Member for Taunton said about the need to review the accuracy of the forecasts provided by the Treasury in recent years. That was a well-made point. I suspect that the Minister will say in response to many of the hon. Gentleman's remarks that the recession threw everything out; that borrowing therefore rapidly increased; that we did not anticipate the recession, or at least the depth of the recession; and that that is why we are in this position.
The problem, however, goes deeper and goes back further. It is worth noting the various budget estimates of when the country would next have a balanced budget. In 2003 it was estimated in the Budget that we would have a balanced budget by 2005; by 2004 that had moved to 2007; in 2005-I do not know whether this is a coincidence, but that was the pre-election Budget-the estimate was still 2007; by 2006 it had moved to 2008; by 2007 it had moved to 2009; and by 2008 it had moved to 2011. And that was before we started to get into the real horrors of the recession and the significant downgrading in the 2009 projections.
"a sustained display of conviction forecasting".
There is a long-standing inaccuracy, and it all goes the same way. As far as the public finances are concerned, the Treasury has consistently underestimated the scale of borrowing and consistently taken an optimistic approach.
Mr. Love: In the forecasting business, it is easy to look back at previous forecasts and point out the inadequacies of those contained in the Budget and pre-Budget documents. However, the hon. Members for South-West Hertfordshire (Mr. Gauke) and for Taunton (Mr. Browne) speak as if there were a magic formula, or a forecaster who has been getting it right all the time. Yet all the private forecasters have been just as bad, or indeed even worse. Although the IFS has been critical of Government forecasts, it has not exactly been an accurate forecaster itself. Does the hon. Gentleman accept that there are difficulties in forecasting, and that all that his figures do is reflect those difficulties?
Of course there are difficulties in forecasting, but when it comes to forecasts for the public finances, it would be fair to say that the Treasury's record is not
good. I am being generous in not focusing on the spectacular inaccuracies of the past couple of years-a point made by the hon. Member for Taunton-because, as the Minister will no doubt say, there was the recession. However, there is another significant point to be made, which is that those inaccuracies are starting to undermine the credibility of the Government-by that I mean government in general; I am not necessarily making a partisan point-in that there is an apparently systemic bias in the Treasury's projections. We can run through the past six or seven years, but the Treasury constantly gets it wrong the same way, year after year.
Mr. Love: I thank the hon. Gentleman for giving way a second time. Let me take a specific example. It is well understood in the forecasting business that forecasts for six months or a year ahead can be relatively accurate, but as the forecast moves forward in years, the inaccuracy increases exponentially. Let us take the forecast for 2010-11. A year ago, when the Government made the forecast that growth would be 1 to 1.5 per cent., they were widely ridiculed, on the specific basis that the hon. Gentleman mentioned, for being biased in an over-optimistic way. We now discover that the consensus of forecasters is that growth this year will be 1 to 1.5 per cent. Does he admit that sometimes the Treasury gets it right?
Mr. Gauke: I do not think that the hon. Gentleman has accurately characterised where the debate was a year or so ago. I remember making speeches about the issue at the time, and the Treasury forecast was at the upper end of forecasts, but it was not that out of line. The criticism-I remember hearing this point made, and I even made it myself-was more of the forecasts for 2011 and onwards, which predicted a trampoline recovery, with growth at 3.5 per cent. year after year.
The Treasury might prove to be right about that. However, if the hon. Gentleman wants to highlight the success of the Treasury's growth forecasts, I would also remind him what the growth forecasts were for the economy at the time of last year's Budget. The forecast was for a much shallower recession than we have actually had. If I remember rightly, the Treasury predicted a recession of the value of about 3 per cent. of GDP, which is significant enough, but the figure turned out to be 4.5 per cent. Taken over those two years, the Treasury was not bang on the money; it got it wrong. However, when it comes to the public finances, the Treasury has consistently got it wrong the same way.
That could be just one of those things, but there is a certain perception out there. This is an important point that I want to put directly to the Minister, but there have been reports that the Prime Minister has on a number of occasions tried to interfere with the Treasury to ensure that its figures were better than they would otherwise have been, whether for growth or borrowing numbers. That accusation has been published on a number of occasions. It is a very serious accusation, so if the Minister could provide some reassurance to the House that there has been no interference from the Prime Minister in such matters, that would be welcome.
Mr. Jeremy Browne:
I am interested in the point that the hon. Gentleman has just made. During my speech, I spoke of the massive disparity between the initial forecasts and the revised forecasts that appeared later. Of course
economic circumstances change, and my point was that this is so difficult for the Government precisely because the circumstances are always evolving in that way. Is the hon. Gentleman also saying that there is another factor at play-that improper political pressure is being brought to bear on the statisticians, and that the figures with which everyone in the House is working, and which are presented to the public at large, are not a faithful representation of what the Government believe the actual picture to be?
Mr. Gauke: Those are the allegations that have been made, and I hope that the Minister will be able to dispel them and put a categorical statement on the record that, as a Treasury Minister, he is not aware of any interference coming from the Prime Minister in this area. We will all be much happier as a consequence, and we shall not have to wait until the Chancellor publishes his memoirs.
Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): According to the PBR, the United Kingdom is going to be borrowing £403 million each and every day over the next six years. Given what the hon. Gentleman is saying about forecasts, does he think that that figure is likely to increase over that period?
It is important that we have a credible system. We are not going to get into a full debate on this now, but our proposal for the establishment of an office of budget responsibility, whereby the powers to make such forecasts would be transferred to an independent body outside the Treasury, would address a number of issues, including the concern that political interference might drive some of the numbers produced by the Treasury. The hon. Member for Edmonton (Mr. Love) was right to say earlier that forecasting was difficult. We are talking about two very big numbers here-expenditure and receipts-and getting them exactly right is not something that we can necessarily expect. However, the bias-by which I mean the tendency of the Treasury to look at this always from an optimistic point of view-is a concern. Certainly, the reports-which do not come from my party-that the Prime Minister has tried to interfere in this are really important.
Ms Katy Clark: The hon. Gentleman keeps referring to accusations made by other people, and to reports. Is he making these very serious accusations himself? Is he suggesting that there has been some kind of interference with statistics from the Treasury or from the Office for National Statistics? If he seriously believes that, he should bring the evidence to the House.
I am choosing my words carefully. I do not have the evidence that that has happened, but there have been various media reports-I am not going to list them all here-that it has happened. We are not talking about the Office for National Statistics; these figures are
produced, as I understand it, directly by the Treasury. If the Minister could address that particular point, we would all be happy. I am not claiming to be bringing evidence of this to the House, but I think that it would be helpful, given that this discussion does exist, if it was addressed.
New clause 1, tabled in my name and that of my hon. Friend the Member for Rochford and Southend, East (James Duddridge), deals with consultation on the Bill. It is worth reminding the House of the purpose of the Bill. It is to provide greater credibility for the Government's fiscal policy. It was published at the time of the pre-Budget report, and it represents a policy that was heavily flagged at the Labour party conference last autumn.
The intention behind the Bill is clearly to persuade those who lend to this country that it is a fiscally responsible country, and that the Government are a fiscally responsible Government. If the Bill is worth having, it might be worth knowing whether the argument is succeeding and whether those who are supposed to be persuaded that the Government will be fiscally responsible are, in fact, persuaded. The current evidence suggests that they are not persuaded. If I may, I shall provide a few quotations. The Minister is entitled to say that they are selective, but as we agreed earlier, all quotations are selective.
|Next Section||Index||Home Page|