Budget Responsibility and National Audit Bill
February 14, 2011
Mr. Mark Field (Cities of London and Westminster) (Con): Thank you, Mr Deputy Speaker, for calling me so early in the debate. As you know, I have to attend a constituency engagement for which, unbelievably, I am not well enough attired, for it is a black tie dinner in the City of London. [Hon. Members: “Ah!”] I am supposed to be protected from that lot, Mr Deputy Speaker, so do your level best, please. I apologise that I shall not be here for all the winding-up speeches.
Listening in the House to Budgets and autumn statements over much of the past decade has been, at times, a somewhat surreal experience. Year after year the erstwhile Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), rattled out cascading figures for growth and public deficit reduction. As the hon. Member for Wallasey (Ms Eagle) rightly pointed out, the growth figures proved, at least until the middle of the previous decade, to be uncannily accurate, even often defying so-called expert opinion. However, the deficit numbers were always hopelessly, devastatingly inaccurate.
Almost comically, although this can scarcely be regarded as a laughing matter, every single Budget between 2001 and 2007 forecast that the public finances would move back into surplus in about three or four years. As time wore on, the debt and annual deficit rose inexorably as the Treasury employed smoke and mirrors to conjure the illusion of fiscal stability.
Matthew Hancock: The hon. Member for Wallasey (Ms Eagle) cast aspersions on the ability of my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Justice Secretary, to forecast, saying that in 1996 he forecast more than 2.5% growth. Information has reached me that in 1997 growth was more than 3%, so it turns out that he was right. What does my hon. Friend make of that?
Mr Field: My hon. Friend makes an extremely good point. In the one case in which the hon. Member for Wallasey (Ms Eagle) tried to argue that there had somehow been untoward behaviour by the last Conservative Government, events have proven, if anything, that they surpassed what had been expected.
Ms Angela Eagle: Will the hon. Gentleman give way?
Mr Field: I fear that we are going to go over old ground, but let us do it.
Ms Eagle: Having conceded that point, the hon. Gentleman now seems to be saying that the best solution is to have the Chancellor make the forecasts personally, which does not seem to be the point of the Bill.
Mr Field: As I recall it, the point was conceded by Opposition Members, not by those on this side.
The relevance of all this to our current economic woes should not be underestimated. With global investors buying into the fiscal assurances made by the erstwhile Government, the rosy forecasts played their part in making it easy for Britain to borrow money during the past decade, and borrow we did, even in the good times. We all now know the disastrous consequences that came to pass.
This salutary experience provided the genesis of the idea for an office for budget responsibility. I must confess that when the Chancellor first mooted the idea in late 2008, when shadow Chancellor, I was sceptical and thought that it sounded like the ideal proposition to be made in opposition and then quietly forgotten. I believe that it is to his great credit that the notion saw the light of day so soon after my party reached government.
My other fear was that it might be an overly inflexible straitjacket to constrain freedom of manoeuvre. Again, the Chancellor has addressed this point up front, as has the Economic Secretary. The Chancellor desires and even relishes such a restriction on himself and, I suspect, on his successors. Although it might not prove to be quite as revolutionary as the Treasury would have us believe, I accept that it is still an important step towards transparency and accountability in forecasting budgetary numbers.
My only reservations are relatively small and relate to issues of practice, rather than of principle. I fear that the real strains and potential limitations of any office for budget responsibility will unfortunately come at the point in the economic cycle when we most need prescient and instinctive judgment. At such times of crisis or near crisis in any economic phase, we require a robust willingness to stand up against the conventional wisdom of the day.
In the run-up to the 2008 financial crisis, for example, no forecasting organisation saw the crash coming. No one in this House, not even the Secretary of State for Business, Innovation and Skills, despite all that is now said on his behalf, really foresaw precisely what would happen. That includes all the independent bodies, such as the Institute for Fiscal Studies. Let us wonder how the OBR, had it been established, might have acted only three or four years ago. Had it not shared the outlook of other forecasters, would it have had the mettle or the strength in 2007 to tell the previous Government that they were living far beyond their means? How would it have been viewed if it alone had advised the Government at that stage to hold back on their spending plans or, indeed, increase the tax burden? I believe that the true test of its effectiveness will come only when it is required to deliver such unpalatable news in future.
Similarly, what if the OBR had concurred with the forecasts of other organisations at the time but a more responsible Chancellor had been in place who instinctively viewed the economically clement weather as only a mirage? Might the perceived infallibility of an OBR forecast have restricted his or her ability to take measures that went against the common wisdom? To that extent, I have some sympathy with what has been said by those on both Front Benches, because we do not know how forecasts will pan out. Even as recently as the emergency Budget on 20 June 2010, many predictions for growth and certainly for unemployment were made at the time that even I thought were slightly too optimistic. The OBR’s notion was that unemployment would reach a peak during the current tax year. We hope that that will be the case, but that will not be down just to Government policy, by any stretch of the imagination. I think that the way the economic cycle has worked out globally means that unemployment is likely to be somewhat higher during 2011-12 and perhaps even higher still the following year.
I believe that there are some unavoidable conflicts in the OBR’s operation. Organisational independence is absolutely vital to its working and credibility, as the Economic Secretary noted in her contribution. However, it must necessarily rely on a close relationship with the Treasury in order to understand its methods and have access to its data. Members have already mentioned the blurring of those boundaries between the Treasury and its new independent conscience that led to the first hiccup last summer-the argument that spilled over from the release of the OBR’s unemployment forecast, which happened to bolster the Prime Minister’s argument when he was under fire later that day in Prime Minister’s Questions.
One must accept that there will almost inevitably be an ongoing tension and an inherent potential for a conflict of interest, but I hope that that has been eased now that the OBR has been able to move out of its Treasury offices and acquire an important physical independence. Without the trust that stems from such autonomy, the OBR is absolutely nothing. Nevertheless, there is also a danger that it will be seen as perhaps too credible and as a panacea in its own right.
Sajid Javid: My hon. Friend will note that in her closing remarks the hon. Member for Wallasey (Ms Eagle) told the House not to see the OBR as a panacea. Did he notice the irony of that statement, because it was the previous Government who passed the Fiscal Responsibility Act 2010 and presented that as a panacea to the nation, pretending that it is possible to legislate and bring down the deficit without taking any tough decisions?
Mr Field: I do not want to go too far into the past, but my hon. Friend is absolutely right. We now recognise the hubristic foolishness of the notion of ending boom and bust and that an economic cycle had somehow been put to one side. We have all now learned that lesson, and this generation of Members will be much more sceptical of any such panacea that is proposed in future.
As I have said, no organisation, not even those without links to the Government, forecast the scale of the economic crisis. Ultimately, economic forecasts are just that, and if we place blind faith in the independent projections, potential risks might also be ignored. Therefore, part of the OBR’s continuing role must be constantly to remind us all of its own fallibility and advise on a range of possible outcomes, pointing out not only to politicians, but to financial markets, the longer-term threats to our economy in the event that the markets, in particular, prove too forgiving.
Putting aside those concerns, which are relatively minor in comparison with the entirety of what we are trying to achieve, there is a great deal to welcome, particularly with regard to transparency and accountability. Furthermore, if the OBR works as it should, it is likely that any unofficial tinkering by the Treasury will be flagged up early and properly scrutinised by Parliament, returning some long-lost gravitas to the Treasury Committee and to Parliament itself.
As I have said in this House before, the restoration of confidence to our economy was always going to depend largely on rebuilding trust. The establishment of the OBR marks an important milestone in encouraging us to place our faith once again in the financial and political systems of our nation. We must of course be alert to the potential pitfalls in its operation, but it also represents an important check against a hitherto unchecked Treasury, and as such the OBR must now be treated as a credible new fixture in this fresh financial landscape.