Budget Responsibility and National Audit Bill [Lords] Debate
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Geraint Davies
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Budget Responsibility and National Audit Bill [Lords]
Geraint Davies Excerpts(13 years, 1 month ago)
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Chris Leslie
If the OBR is to do an adequate and holistic job in commenting on economic prospects, it surely needs the clear and explicit right to comment on employment policy, growth policy and so forth. My hon. Friend is absolutely right to raise the issue of employment and jobs. The most recent figures show that the jobseeker’s allowance claimant rate is 8% of the population, which is a 17-year high, and a prediction of 2.6 million unemployed. Again, that is likely to be revised upwards by the OBR when it comments on the forthcoming Budget.
My constituency, Nottingham East, symbolically passed the 10% claimant count rate, which is a very depressing milestone. For those reasons, and because long-term unemployment is increasing so quickly—it is up 24% in the last year—and more than one in five young people between the ages of 16 and 24 are out of work and on the dole, surely we need the charter for budget responsibility to include a growth mandate, and for the OBR to have the ability to assess the impact of the Treasury’s polices on jobs and growth.
Geraint Davies (Swansea West) (Lab/Co-op)
The Bill states:
“It is the duty of the Office to examine and report on the sustainability of the public finances.”
The sustainability of public finances involves three factors: tax, spend and growth. In tomorrow’s Budget, the Chancellor is expected to say, “This is a Budget for growth with very little change in tax and spend,” but it would be remarkable and ridiculous if two massive parts of the sustainability of public finances were not properly accommodated within the OBR.
Chris Leslie
My hon. Friend is absolutely right. It would be such a pity if this edifice—the OBR—did not scrutinise the things that the Government know they are vulnerable on, and on which their policies are deficient. The Government do not have a strategy for growth and jobs, and we need the OBR to be able to expose that. Growth has a number of drivers—
Chris Leslie
If a policy were having a significantly adverse effect on jobs, such as some of the policies pursued by the current, Tory-led Government, it would be useful to have an independent, authoritative budget office to comment on that and to flag it up—to put out a red alert, as it were—as something that parliamentarians ought to comment on. I would not have a problem with that level of commentary. We should be big enough to cope with that level of challenge, audit and scrutiny. We would not be giving the OBR any power to make decisions; the point is simply to shine a spotlight on Treasury and Government policies.
Chris Leslie
If my hon. Friend will allow me, I will not give way. I have been speaking for rather a long time and I want to stop, but hon. Members may wish to make their own comments individually.
Clearly we need a proper growth strategy, but a growth mandate would also help. We need to start focusing on future growth industries and maximising our comparative advantage. We need to cast forward with a growth strategy not just for a decade, but for several decades. We need to focus on skills and, yes, a fiscal strategy, but we also need to focus on job creation, and a growth mandate with the clarity for the OBR to make its own assessments would certainly be a step in the right direction.
John Mann
I will have to resist—not because I am not keen to respond, but because I see immediately that Mr Deputy Speaker does not want me to stray into taxation policy. This is about the statistics, and the statistics are fascinating when we know that Labour Chancellors have put up petrol duty so little in comparison with Conservative Chancellors. We know why: it is because we are on the side of industry and of business. We have not said that enough; we have not been proud enough to say it, and we need to say it far more.
When it comes to economic decision making and the ability to have comparators, the statistics are vital. That is why I emphasise that, in essence, amendment 1 is a pro-Government amendment. I predict that, at tomorrow’s Budget, the Office for Budget Responsibility will not provide such analysis. It is wrong that it will fail to do so, but its excuse will be that it does not have a mandate. We have an opportunity to put that right. I look to the Minister to nod to show that she is going to accept this excellent amendment in order to strengthen decision making and to be on the side of the motorist and those who want a proper debate on the labour market and jobs in this country. I commend the amendment to the House.
Geraint Davies
The amendment is essentially about making growth a centrepiece of the Office for Budget Responsibility—for very obvious reasons. The OBR’s remit, as set out in clause 4, is to
“report on the sustainability of the public finances”.
That sustainability consists of tax, expenditure and growth. We are not saying that the OBR makes no implicit consideration of growth, but that growth needs to be made a much more central part of the information available for our deliberations.
Justine Greening
Clause 5(1) states:
“The Office has complete discretion in the performance of its duty under section 4”.
Does the hon. Gentleman think that that is somehow insufficient to provide the OBR with the absolute discretion it needs to do any analysis it wants to fulfil the main duty he mentioned?
Geraint Davies
Having complete discretion is useful, but the word discretion means that something remains a matter of discretion—these things do not have to be done. The OBR has the discretion to go around looking at whatever it likes, but the amendment is saying something different—that the centrepiece of our economic future is economic growth. That has belatedly been recognised by the Chancellor, as we will see in tomorrow’s Budget, when he will say, “I have done all the tax and spend, but, oh no, everything is going wrong because growth is going down the chute, so I had better belatedly do something about it.” The previous Government had sent us on a trajectory of positive growth, albeit that it was a fragile recovery after a financial crisis. The Chancellor has seen that we are going into negativity, so he has scratched his head and realised that growth has something to do with the public finances.
We have been lambasted by Conservative Members who say that the deficit is terrible and Labour left the cupboard bare. They conveniently forget that, as reported by all the economic forecasters, including the Institute for Fiscal Studies, two thirds of the £84 billion deficit came from the international financial crisis. That was not Labour’s fault. When Conservative Members suggest, “Oh, well, we should have had more regulation”, they seem to forget that when we created the Financial Services Authority to introduce more regulation, they said they wanted self-regulation and complained about red tape. In fact, it would have been much worse had it not been for the Labour Government. Furthermore, that regulatory hole in the armoury was commonplace across the globe. That is why Governments in Greece, America, Spain and elsewhere have had problems dealing with the financial deficits they inherited. Obviously, we were more vulnerable to sub-prime debt, as we know because the financial sector is larger in Britain.
Let us get away from the myths about why we have the deficit and deal with the challenge of how to get rid of it. We get rid of it by striking a proper balance between growth, making savings over time and ensuring that the bankers pay their fair share. It is convenient for the Conservatives to say that there is only one way of achieving the task. Instead of having a balanced approach to maximising growth, making the bankers pay their fair share and making credible savings that are realistic over time and would halve the deficit in four years, Conservative Members say, “No. We don’t want to halve the deficit in four years; we want to get rid of it in four years, and we do not want to use growth or involve the bankers. The bankers are our mates after all, so they can have some more money. What we will do is make the cuts twice as fast in just one way—through savaging public sector jobs and services.”
Then, remarkably, growth starts to recede so that the sums no longer add up, as there is obviously an interrelationship between private sector growth and public sector funding. Thus they suddenly realise that they have to do something about growth. The amendment is about recognising that the centrepiece of macro-economic planning and fiscal responsibility is growth. It is all very well for the Minister to say, “Oh well, the OBR will have absolute discretion; it can look at growth if it likes, but if it doesn’t want to, it doesn’t have to.” That is the problem; its eye is off the ball. We need to get the finances in proper balance without destroying communities, which is what Labour Members stand for.
Stewart Hosie
If I may take the hon. Gentleman back, he mentioned Greece and banking regulation. Can he explain to the House how the failure of Greek banking regulation had anything to do with the sovereign debt crisis, and what on earth the amendment, which is about a growth mandate, has to do with that?
Geraint Davies
I will try and speak more slowly. My point was that the international financial crisis affected all countries’ debt, not least that of Greece. Obviously, it has its own banking system, underneath the European Central Bank. There was a common cause for many of the deficit problems around the globe. It was not uniquely Labour’s fault, as the Government make out. The amendment seeks to clarify the factors that are generating the fiscal future, including growth.
Justine Greening
The hon. Gentleman keeps talking about the deficit as though it was something that descended upon us. The bottom line is that the UK had a structural deficit. That means that his Government were spending more money on public services than was being generated in taxation, even in the good years, so we were never going to be in a position to start paying off any of our debts, which is why the markets got so concerned about continuing to lend to us. That is a structural deficit, and it is a fact, even if the shadow Chancellor will not accept it, and that is why we have to have a deficit reduction plan in place.
Mr Deputy Speaker (Mr Nigel Evans)
Order. This is a fascinating debate, but not for today. If we could get back to the specifics of the amendments before us, perhaps we could make some progress.
Geraint Davies
I am grateful for your advice, Mr Deputy Speaker, and for the Minister’s intervention. In a way, her intervention makes the case for having growth at the centre of the OBR. I am sure that when she reads her words, which I appreciate were spoken with some emotion and anger, she will wish that she had picked them more carefully.
When we look at the facts and strip out the impact of the international financial crisis, which is about £84 billion in terms of our structural deficit, there was a residual deficit, to which the hon. Lady refers. There was an excess of expenditure over income, but that was taken into account in future planning. There was a savings plan from the previous Chancellor, as she knows, to cut the deficit in half in four years. That was not exclusively reliant on cutting public services and jobs. Rather, it relied on stimulating growth.
The OBR’s estimates of growth have been downgraded. Those higher levels—2.6%—would have provided more fuel to get the deficit down. I recall that the projected deficit in the pre-Budget report was £30 billion less than had been predicted previously. In other words, growth had been occurring faster than was thought. Now it is growing less fast—in fact, it is growing negatively.
Justine Greening
Just on the off-chance, I wonder whether the hon. Gentleman would be able to set out what the £14 billion of cuts were that his party was planning to start in April.
Mr Deputy Speaker (Mr Nigel Evans)
Order. We are going much wider than the amendments. Could we please confine our comments from now on to the amendments before us?
Geraint Davies
The point I was making before I was distracted was why there should be growth in the OBR. What were the previous Government’s plans to get the deficit down? That is what the hon. Lady asked. It is important to recognise that the plans that we had were largely growth plans, which will now not be taken up. I shall give one simple example.
The Government said, “We’ll cut some expenditure. We’ll cut the regional development agencies.” So there I was, going to speak to UK Trade and Industry which, as Members know, is the marketing operation for Britain abroad, about encouraging inward investment and trade with foreign countries. I was talking to UKTI in Germany, as it happens—
Geraint Davies
No, in Welsh. I was in Dusseldorf, talking on behalf of the Welsh Affairs Committee. This is relevant, Mr Deputy Speaker. UKTI had been marketing Britain, and various German companies had been saying, for example, “We want to invest in a food and drinks factory. We want these skills and this site, and ideally these grants and these communications.” That would have been put on a computer platform and pulled down by regional development agencies to encourage inward investment. I asked what was happening now, and was told, “All these bids are coming forward for creating jobs in the UK, and the RDAs are not pulling them down because they have been abolished.”
That is a simple example of how the cuts in administration and red tape are stopping quality jobs being created in Britain. The cuts undermine growth and are false economics. To answer the question about where we would cut the deficit, Labour would reduce the deficit by encouraging growth and jobs. I was talking to a business man last week in Swansea. He said, “I run a business. Why are the Government always talking about cuts? If I was making a loss and wanted to cut my costs, I would not sell my tools. Yes, I’d keep my costs down, but I’d invest in sales.” The Government’s position is like paying off the mortgage by selling the furniture, rather than getting a job. That is ludicrous.
That is why growth as the centrepiece of the Office for Budget Responsibility is so important. To release the entrepreneurial spirit and focus it on export-driven growth is the primary aim of Labour, but not of Government Members, who have let down business.
Stewart Hosie
I am trying to understand the amendment. To have a growth mandate in the OBR would have allowed it to explain precisely where the £57 billion of cuts every year under Labour from 2013-14 onwards would have come from. Is that correct? The growth mandate would have explained where the £57 billion of fiscal consolidation would have come from. Is that correct?
Chris Ruane
No. The hon. Member for Dundee East (Stewart Hosie) is listening too slowly.
Geraint Davies
There was never any suggestion that the OBR could miraculously conjure up the optimum strategy, which has not even been launched by the Opposition, to solve the deficit problem more effectively. The Government are struggling with a one-string bow. They said, “We’ll get the deficit down by sacking everyone quickly,” forgetting that that would grind growth into the ground. We need to evaluate the changes in policy and particularly cuts in growth-creating capacity.
The problem might not be RDAs. It might be that we are undermining the capacity of our universities to ensure that the most able students are not deterred from going and that they become future growth generators and entrepreneurs. It might be the failure to provide connectivity between industry and universities to ensure that good ideas are commercialised and that there are opportunities for clusters of SMEs around universities. There are lots of ideas that can be calibrated for their impact on the public accounts. This move is an attempt to refocus all our minds on the importance of engines for growth, instead of cutting the legs away from the players.
Stephen Williams
Given that the hon. Gentleman wants growth-led manufacturing and university clusters, does he welcome the announcement made last week by the Business Secretary and the Deputy Prime Minister of technology and innovation centres around the country, including the composites centre in Bristol?
Mr Deputy Speaker (Mr Nigel Evans)
Order. We seem to be skiing off-piste every time there is an intervention and trying to tempt Mr Davies on to territory that is not relevant to the amendment.
Geraint Davies
I am grateful for your guidance, Mr Deputy Speaker, because I would not want to be tempted in the least. I will resist temptation.
The focus of the amendment is very much on the important area of growth. As I have mentioned, the important opportunity is to refocus our entrepreneurial activity on export-driven growth. For example, in the Budget tomorrow the Chancellor might announce tax breaks for investment in small and medium-sized enterprises, which I would welcome. I do not think that he will, because he does not particularly care about SMEs; he will just say something about not giving mothers and fathers rights to see their children. The fact is that, with regard to the engines of growth, the liquidity has been taken out by the banks, which are just rebalancing their balance sheets. They should be pressurised into providing the fuel to allow the entrepreneurial engine to move forward, because so many companies have full balance sheets but no cash flow because the banks are letting them down.
It would also be a good idea to have a tax break for investment in SMEs in order to push things forward, as that way people could put in their own money and it would produce a better rate of return from the point of view of the business and venture capitalists. I do not think for one moment that the Chancellor will announce such a tax break—he does not have the imagination—but if he did, that could be factored into the growth figures for the OBR, because obviously the money we would spend on the tax break would be recovered from business growth, particularly if it was targeted at export-driven, high-quality manufacturing.
Andrew Bridgen
Does the hon. Gentleman believe that the OBR, had it existed before the financial crisis, would have been able to tell the previous Government that much of the growth they were claiming was actually a mirage? That growth was driven by a Government who were spending more than they were gaining in taxes and so creating a deficit. To pick up on a point made by the hon. Member for Bassetlaw (John Mann), they were also exporting manufacturing jobs to the far east and importing cheap goods, which was having a deflationary effect on our economy, allowing interest rates to be kept artificially low and feeding a housing bubble that was getting ever bigger. When it burst, that was when it all happened.
Geraint Davies
I am glad that the hon. Gentleman is wearing a badge saying that he has a GCSE in economics, but I doubt it.
On a serious point, I have already accepted that prior to the financial crisis there was a marginal deficit to be confronted, and it was going to be confronted through growth initiatives. We have since had the financial crisis, and the important thing now is to move forward with ideas for investing in growth. Clearly, there are big questions on tax and spend and where those will be deployed. Many new ideas might emerge in the Budget, such as a windfall tax on the energy giants, whose profit margins have suddenly increased by 38% because they did not adjust their prices when costs changed and so ripped off Britain’s consumers. That is obviously a legacy of the previous Conservative Government’s privatisation and the lack of controls.
There is money available to invest in growth and services and to close the deficit gap. The point about the amendment is that we must put growth centre stage, as that will enable us to move forward in a balanced way, rather than in the narrowly defined way that the Government prescribe. With those thoughts, I will give other Members the chance to make their own unique contributions.
Chris Evans (Islwyn) (Lab/Co-op)
After the epic speeches from my hon. Friends the Members for Bassetlaw (John Mann), for Swansea West (Geraint Davies) and for Edinburgh South (Ian Murray), I will keep my comments succinct and tight, and I will try to keep to the amendment.
The most important thing about the amendment is that growth is key and that there must be some plan for growth. It is all very well saying, as many Members have, that there is no plan B, but it seems to me that there is no plan A. There is no rationale for a plan A or a plan B. It is important to know what that rationale will be. We need to know how the Government reach their decisions.
I am going to say something quite shocking: I do not believe that the majority of people in this country care about the deficit. Government Members can call me a deficit denier all they want, but I believe that when people are sitting around their kitchen tables at night they are most concerned about their jobs, their borrowing, their mortgages and their houses. That is what keeps them awake at night, not the deficit. Yes, the deficit is important.
Chris Evans
Thank you for your advice, Mr Deputy Speaker—I have not been here very long.
Getting back to the amendment, it is important that we have the rationale for growth and know how the Government reach their decisions. We cannot talk about this in the microcosm of a dry subject of forecasts. We cannot debate forecasts in this House; we can only debate judgments on how the Government arrive at those policies.
Geraint Davies
The hon. Member for Nuneaton (Mr Jones) mentioned his children. Surely the important point about growth and the amendment is that if we invest in his children, in their education and in the opportunity to go cost-effectively to university, to add value and to promote future growth, that is the future they can look forward to. That is why his children are probably a bit disappointed that he supported the increase in tuition fees. Let us have growth.
Justine Greening
I am pleased to have the opportunity finally to respond to some of the points that have been made and to the amendments that have been tabled. It is important to say first that I very much welcome the contribution that Members not only in this House but in the other place have made to get the Bill to its current stage. Despite the debate we have had on growth, which of course is important, I think that there is broad support across the Chamber, as there was in the other place, for what the OBR is intended to do and for setting up such an office that can work effectively.
All the amendments relate to growth, so perhaps we have stared the debate that will no doubt continue tomorrow after the Budget. We believe that economic growth and job creation are absolutely vital, and Members will see tomorrow that that is a core part of the Budget. I agree with many of the comments that have been made about why we need to see growth as part of the Budget. I want to take the time to clarify some points that have been raised.
The debate so far has been about policy and strategy, but the OBR is not a policy-making body; it is there is look at the forecasting and produce the official forecast for the UK Government. It is precisely not intended to make policy. One of the things we have been very careful to do in setting out how the clauses and the charter work is ensure that the OBR’s independence, impartiality and transparency, which are also vital, are not compromised.
Geraint Davies
Having said that, will the hon. Lady accept that some of the OBR’s responsibility should be to forecast what it regards as the impact of policy changes from the Chancellor? For example, if he was to announce suddenly that he will let the private sector deliver public services so that entrepreneurial capacity will be taken out of export-driven growth and put into making easy money out of monopoly-provided public services, would it not be right for the OBR to say, “Hold on, that capacity has gone over there so our growth will go down”?
Justine Greening
I hope I can provide some clarification. The OBR has the freedom to consider the impact of policies on sustainable public finances, including employment policies. If the hon. Gentleman looks at some of the forecasts the OBR has already made, he will see forecasts for employment, average earnings, ILO unemployment, the percentage of the claimant count and, of course, growth. Hon. Members talked about the OBR’s assessment of growth and what it will show over the coming years. The OBR is already producing an awful lot of the analysis that hon. Members want to see, but it is fair to say that today’s debate will—I hope—be of interest to the OBR in understanding what information and analysis it might feel it needs to provide to convey what it wants to, which is some assessment of the economic growth forecast for this country.
Let us be clear that the duty of the OBR is very clear and is set out in clause 4. It should examine and report on the sustainability of public finances but, as hon. Members have said, Government policy clearly impacts on that. By definition, the OBR will consider how policy impacts on the sustainability of public finances.
Geraint Davies
In conversation with the Institute for Fiscal Studies, I asked various questions about growth and its calculations and it was pointed out to me that the IFS was in essence made up of micro-economists who were aggregating up to deliver predictions about Government fiscal outputs. I respect what the hon. Lady is saying, but it seems to me that she is basically saying that the OBR will be doing something very similar. It is very easy to make such predictions if we say, “Assuming that everybody is still employed, that we have taxed them this and that they spend that, this will happen.” What is more difficult is to model the impact of individual policies in a Budget on growth and hence on the public finances. The hon. Lady is giving us some reassurances, but I think the point of our amendment was to push her to say that this would become a priority for the OBR so that we could have a richer understanding of the growth scenarios in the future. I appreciate that some of that is done, but we want more.
Justine Greening
Ultimately, a key clause—I think clause 5—sets out that it is at the OBR’s discretion to decide how to carry out its duty. A fundamental building block of the OBR’s credibility is its independence. I assure the hon. Gentleman that the risks he mentions, such as the concern that the OBR might not carry out robust analysis, are mitigated by other safeguards in the Bill. For example, one duty of the OBR will be to produce a report on the accuracy and robustness of its forecasting. As he will be aware, there are also non-executive directors who will be there on a day-to-day basis to challenge how effectively the OBR works and every five years, at a minimum, there will have to be a completely external peer review of the OBR’s workings.
I think we have managed to strike a balance by setting up the OBR in the way I have described—on the one hand by giving it independence, so it has that key element of credibility, and on the other by including some safeguards, in terms of its structure, its management and the review, so that, if for some reason it does not produce the quality of forecast that we need, those safeguards will be in place to ensure that we tackle the issue. Let us not forget that the OBR is accountable not just to Parliament, but to the Chancellor, because it produces the official forecasts.
Finally, amendment 4 suggests another new related role for the OBR, which as we have heard would be to assess the Government’s growth mandate. As I said in response to amendment 1, the Government seek to achieve their economic policy objectives through a range of policy tools and frameworks, not just through fiscal policy, but the OBR has been established to increase the credibility of the Government’s economic and fiscal forecasts and to hold the Government to account for their economic and fiscal policies.
That highly valuable role is recognised by a wide range of domestic and international commentators. The hon. Member for Swansea West mentioned the Institute for Fiscal Studies, and it warmly welcomed the establishment of the OBR, which, through its role, has already provided forecasts of key economic variables. In its November report, the OBR set out forecasts for the next five years, covering a range of key macro-economic variables, such as GDP and its forecast growth, inflation, employment, average earnings, unemployment and the output gap. In addition, the OBR will have the freedom to consider the impact of Government policy on economic growth and employment within our regions and nations, and in line with its main duty. I therefore consider all the amendments to be unnecessary, and I hope I have addressed the issues that hon. Members have raised.