I want to make two further points in response to the noble Lord, Lord Davies, before I come to the thematic areas. On the topic of inequality, on which I am a little surprised more was not said—in some ways I am pleased about that—and as I tried to address very specifically in an Oral Question recently, based on the existing objective measures of these issues, it is the case that inequality today is less prevalent than it has been for the past decade. What I probably did not say within the considerable amount of evidence that I cited during that brief Question—that is why debates such as this one are much more useful because one can say more that is of real substance—is that while there may have been aspects of rising inequality within different income groups, on all the internationally accepted measures of income both before and after tax, inequality is lower today than at any time in the past 10 years. When it is adjusted for wealth, which is the result of house prices, that is not the case. That is

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why it is appropriate to put so much effort into trying to do something about the tremendous housing challenge we are facing.

In the spirit of how I began, which is that the world is not quite as gloomy as it seems, something that so many people believe innately in their veins, it is important for everybody to realise that global inequality has declined and continues to decline at a pretty considerable rate. The United Nations achieved its goal of halving world poverty, without even realising it, five years sooner than it originally stated. One has to be careful of making such overwhelming summaries.

Let me turn to the thematic issues. It is most important that we start with the personal independence payment. The noble Lord, Lord Eatwell, challenged me to be clear about it, so it is appropriate that I should start with PIP. The most important thing to say, in my opinion—here no doubt I risk upsetting some of my colleagues as well as many others—this is what I would personally describe as a Q times A equals E problem. Many years ago I learned that if you are trying to pursue an idea or a policy, the quality of the idea times its acceptability equals its effectiveness. I shall come on to this in terms of the frankly quite ridiculous, albeit amusing, things we have heard about black holes. The prime purpose of that policy initiative was to try to stop the degree of gaming and abuse of beneficiaries, which sadly in the way it has been portrayed has not been able to be done successfully. That in my limited understanding is why the issue came to our attention and generated the policy behind it. It comes down to making sure that the people who are in need of government support are those who get it, and rightly so, and those who are not in need do not get it. I am sure that this issue will be addressed again.

On the £4.4 billion, let me first point out that total government expenditure in this year’s Budget will be close to £700 billion, so the idea that £4.4 billion spread over five years is going to put a black hole into the Government’s finances is really not worthy of me pursuing in any great depth. While I am going to come back to this as a separate theme, a number of noble Lords have quite rightly talked about the volatility of the forecasting environment we are in. On the OBR’s forecast change, one noble Lord—perhaps the noble Lord, Lord Bilimoria—referred to the four-month gap since the Autumn Statement but it is actually not much more than three months. The forecast is £55 billion different from what it was. That is the context in which one should think about this so-called black hole. By the time we get round to the Autumn Statement, one of the few things I can guarantee for Members of this House is that the OBR’s forecast will change again, and I suspect that it will be considerably more than £4.4 billion.

Theme number two is on the environment, what I just said about the OBR and on forecasting in general. As noble Lords will know, I spent many years of my life—far too many—in the dubious world of economic forecasting. There is a slight dilemma in that the Government have, very importantly, introduced the power of an independent entity, the OBR, to constrain the actions of the day by providing these forecasts. Partly due to the incredible uncertainties of the world

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economy in general but also to the circumstances over the past three months, this is a very large change in forecast. In my old life, where I managed a large number of economic forecasters, I would not encourage people to change their forecast that frequently. However, if that is the process which has been brought about by the existence of the OBR, it needs to be respected by the Government. It is an independent entity and we need to set our policies in that framework.

I will finish on that topic, although I could talk about it all afternoon. Robert Chote said to the Select Committee yesterday that he thinks there is a 55% chance that the Government will achieve a fiscal surplus by the end of this Parliament. Again, as someone who has been steeped in economic forecasting for a large part of my life, while many noble Lords might not think it, that is not a bad probability of a good outcome. I used to joke to people that 60% right would allow most people who presided over it to be lucky enough to be well off enough to own their own Caribbean island. I encourage those noble Lords who question the value of such statements—I will come on to that in a second—to think again.

That takes me to theme number three on the issue of fiscal policy and the right framework. A large number of noble Lords have somehow again raised the idea that there is no economic purpose to having a fiscal surplus. Unless international economic theory and best policy has changed dramatically in the three years since I was so immersed in it, on the contrary, it is widely accepted that when countries are at or close to full employment they should run a fiscal surplus or very close to it. One can argue about the dates but the goal of trying to achieve a fiscal surplus in normal times is an extremely sensible economic policy to pursue, not least because if you luckily achieve that in not normal times, it gives you the fiscal leeway to do something about the immediate needs of the weak cycle that one would focus on.

I will go from that theme directly into the very important issue of productivity. I do not at all have enough time to respond to the many powerful things noble Lords have said. To those noble Lords who seem to enjoy a more pessimistic way of thinking, I say that one should not dismiss another reason why it is important to focus on fiscal policy. If the productivity data were genuine—I have considerable doubts which I have expressed before and will do so again in the future—it may well be because of a large level of public debt as a share of GDP that has been accumulated both here and in many other parts of the developed world. To take it back to the purpose of fiscal policy, there is a reasonable amount of evidence that public debt as a share of GDP somewhere below 60% of GDP, and especially if it is below 40%, generally creates a much better environment for private sector productivity. One could argue about the scale of some of these numbers but the notion of not trying to pursue a fiscal surplus in a time of full employment—and we have the highest employment for 40 years—is, in my judgment, mistaken.

There were some very useful comments on productivity more generally, and I apologise that I do not have time to go through them all in detail; I want to focus on one or two areas. I am surprised more was not said about

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education. I spent a considerable amount of time today, as I have done in the past, looking at globally comparable indicators for factors relevant to productivity. If you try to identify those that the UK seems weaker in as compared with the rest of the world, it is education that sadly comes out as one of the most identifiable. That is why it is a feature of this Budget. The noble Lord, Lord Bilimoria, made comments about higher education and I think other noble Lords made similar comments. My surprise came because in my judgment, doing more about education and skills, particularly for younger people, which is what we have tried to focus on in this Budget, is probably the single most important thing in terms of improving—adjusted for measurement error— our long-term productivity.

On taxes, a considerable number of interesting things were said as time went on, and I want to touch on two or three. First, I personally think that the sugar tax is a very courageous move. As many noble Lords may be aware, in addition to my responsibilities as Treasury Minister, I am chairing a review into antimicrobial resistance where I have to think a lot about the role of taxes, subsidies and incentives. What has been introduced is an important step for policy-makers to think about for further development, as the noble Baroness, Lady Kramer, implied with her question.

More broadly on taxes, some interesting comments were made about taxation with respect to private businesses. This links again to the review that I am leading. A major peculiar aspect of our time is that private sector investment spending both here and elsewhere in the world is very low despite enormous levels of cash. There is quite a bit of growing evidence that private sector entities that are not subject to some of the challenges of public accounting are better at investing. One purpose of the policies taken was to encourage—particularly for start-ups—more risk-taking in an equity sense for private investment. The comments by my noble friend Lord Lupton and others about capital gains tax should be seen in that context. We suffer from weak productivity and investment, and the measures that have been seriously thought about from a micro-economic perspective to try to stimulate them further are very important.

I have run out of time; I knew that I would and I apologise. There are many other things I would like to have said. Let me summarise by saying that I believe the UK still has a brighter economic future than I have heard in the tone of what many have said today, notwithstanding the challenges we face. As we have discussed, this Budget has come at a time of significant downward revisions both here and elsewhere in the world. At some point in the future, who knows when, it is quite possible that those revisions will go in the opposite direction. Against that background, it is important to note that this Budget prioritises long-term growth potential and investment, tries to support business, builds up young people’s skills, gives another tax cut to workers as well as business, and tries to help more people to get on the housing ladder.

The submission of the convergence programmes, which was touched on briefly, should not be affected by the fuss about PIP for the reasons that I have outlined. The submission by euro-outs and stability programmes by euro area member states provides an

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important framework for co-ordinating fiscal policies. A degree of co-ordination across countries can be beneficial to ensure a stable global economy, which is in the UK’s national interest. The UK has always taken part in international mechanisms for policy co-ordination, such as the G7, G20 and OECD, and it should continue to do so.

The Government’s fiscal strategy remains that the UK should live within its means by running a surplus

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in normal times, which is a reliable way of ensuring debt reduction that will continue over the longer term, leaving the country better placed to withstand future economic shocks as and when they appear. This Budget sets out the policies that will help our economy to succeed in the long term, and I am delighted to commend it to noble Lords.

Motion agreed.

Committee adjourned at 3.55 pm.