Office for Budget Responsibility

James Gray Excerpts

Tuesday 24th July 2018 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Mr Gray. I thank the hon. Member for Ochil and South Perthshire (Luke Graham) for securing the debate, as well as the Backbench Business Committee.

I am delighted that we are talking about the remit of the Office for Budget Responsibility. I strongly agree with the hon. Member for North East Derbyshire (Lee Rowley) that it is an important issue. I regret that we do not have many Members thronging the Chamber; the last time but one I was here was for the debate about safe standing for football grounds, and it is a shame that we do not have the huge numbers we had then. It is incredibly important to talk about the robustness of figures when it comes to budgeting. I have to say, if you will permit me, Mr Gray, that it is also a delight for me to be able to talk about Labour’s manifesto and spending plans. It feels like summer has come slightly early for the Labour party—perhaps not quite as early as the Prime Minister had hoped. Still, I am pleased to be able to cover those subjects, but I will do so briefly, Chair, so as not to strain the patience of those in the Chamber.

Labour, of course, supports the OBR. We have had a good summary and discussion here of its origins and its work, and Members have usefully referred to how it follows on from similar independent fiscal institutions in other countries, not least those in the Netherlands and the US. The hon. Member for Strangford (Jim Shannon), who is no longer in his place, rightly mentioned the significant expertise we have in our OBR, how it compares favourably with other parts of Government and how we need to ensure that we support the people who work there. I very much want to pay tribute to all their hard work.

The OBR’s analysis, particularly in recently years, has been enormously helpful, especially in performing the task—referred to briefly by some Members—of having a long-term perspective on Government spending and its potential impact on economic sustainability. Of course, it was the OBR that pointed out, at the time of the last spring statement, how projections for both GDP and productivity and investment growth are set to be lower than anticipated, thus counteracting, perhaps, some of the media coverage that has suggested that as a country we are out of the woods in some way. On the long-range issues, the OBR has suggested that much work needs to be done if we are to get our economy on to a more sustainable basis. I very much agree with the hon. Member for Ochil and South Perthshire’s praise for the OBR’s accuracy in that regard, even though the office sometimes has negative, or at least concerning, lessons to impart about the long-term economic sustainability of our country.

The OBR has been unafraid to speak some perhaps uncomfortable truths when necessary. There was much discussion of its role around the time of the last Budget, when the new stamp duty holiday policy was being introduced. The OBR was concerned to look at its potential impact on house prices. It was criticised for doing so, but it was absolutely right that it did.

The hon. Member for North East Derbyshire helpfully mentioned some of the trade-offs involved in policy making and suggested that we need more of a focus on those, particularly when assessing the economic impact of Government policies. I strongly agree that that issue needs to be much more explicit. We need a far better quality of debate in that regard, and the hon. Member for Aberdeen North (Kirsty Blackman) gave us some very good examples of where short-term savings appear to have been made in Government budgets but have long-term impacts, often not for central Government but for local government. In practice, debt has been transferred over recent central Governments to local governments, foundation trusts and other bodies. In many cases, the debt has not gone away; it is just in a different place, and we need a greater focus on that.

Above all, we need a far greater focus on our long-term productivity problems and the OBR has played an important part in encouraging evidence-based debate on the topic. In the long run, if we do not deal with our investment gap, which in Britain is far larger than in many comparable countries—our investment has not gone back to pre-crisis levels at the same speed as elsewhere—we will not have the capacity to raise sufficient Government revenue in the future. We have to deal with those issues quickly, and bodies such as the OBR help us to do that and perhaps to move beyond some of the sterile debates about making short-term savings that do not promote long-term sustainability.

Labour is such a strong supporter of the OBR that we agree with the hon. Member for Ochil and South Perthshire about an extended remit. The OBR has helpfully raised the salience of long-term challenges for the UK’s public finances due to demographic change—something the hon. Member for Henley (John Howell) usefully mentioned—but Labour Members feel that it could have a more expansive role when it comes to a long-term threat that is not sufficiently considered by the Government, that of climate change and environmental degradation, to which many experts, not least Lord Stern, have drawn attention. We ask the OBR to report in particular on the fiscal risks of climate change, which could include the impact of raised food costs, the costs of flooding, and lost productivity caused by extreme weather events.

The current Government may be sanguine about lost revenue; we saw just last week another Treasury Minister talking about the potential trade-offs between being able to move goods across borders in the event of a no-deal Brexit and potentially losing revenue by not being able to collect VAT. No study has been done on the potential impact of that. We have had nothing from the Government that spells that out, but we should have. We need transparency on such issues and on the short and long-term risks to the public finances, particularly in relation to, as I said, environmental damage.

Widening the OBR’s remit would go with the grain of developments in many other countries. The hon. Member for Aberdeen North rightly referred to the fact that we always need to look at international examples. She helpfully referred to some of the thinking that was done about the Scottish Fiscal Commission; other Members referred to that as well. I agree with her that negative lessons can often be particularly important—learning from what has not worked as well as what has. Certainly we can learn from the EU’s fiscal forecast and the countries that look more expansively at environmental matters.

Adding more of a focus on environmental matters to the OBR’s remit would go with the grain of what the Bank of England has been doing by incorporating a consideration of banks’ exposure to climate change-related risks and stranded assets as it regulates banks. It would echo the approach of many long-term investors who are increasingly considering environmental matters when it comes to assessing the promise of different investment opportunities. The OBR would probably be willing and happy to do something that would usefully build on its existing activity.

We also want to strengthen the independence of the OBR, requiring it to report to Parliament rather than merely to the Executive, as was helpfully mentioned by the hon. Member for Ochil and South Perthshire. That is the approach of the CBO in the US, and it could be usefully adopted here. It is not unusual for an independent fiscal institution to report to the legislature rather than the Executive, and it would aid the OBR to show that it is a truly independent evidence-based body that can have a real impact on policy making. It might also then lead to a greater salience of its reports at a political level and at the level of public discourse and debate as well, which would be a good thing.

There are many other areas where we need more data and analysis to truly assess the impact of economic decision making. One area that has come up frequently in recent Budgets concerns the lack of distributional analysis of Government economic decisions. I am pleased to see support for that from the hon. Members for Ochil and South Perthshire and for North East Derbyshire, who are nodding. The Department for Work and Pensions carries out such analyses frequently. The Treasury appears to do such analyses, but it does not report them publicly very often, which is a problem. The Government have a duty under the public sector equality duty to consider how their decisions affect people with protected characteristics, but at the time of a Budget, for example, we do not have that analysis in front of us, so we cannot examine the impact of policies on different groups, and it is very difficult for members of the public to assess the impact on them.

Recent policies have had very different impacts on different groups of people. If we look at changes to social security, the incomes of lone parents, particularly black and minority ethnic lone parents, have dropped substantially by up to around £9,000 in some cases, and that has not been made clear from Treasury analyses before Budgets. It is important to have a clearer handle on such impacts at the time when we actually vote on such measures.

On the point about greater evidence and analysis before economic decision making, the hon. Member for Aberdeen North rightly referred to the need for greater post hoc evaluation of economic decisions. She referred to the case of tax reliefs, which is something that I have worked on for some time. We rarely have post hoc evaluation of the impact of tax reliefs in the UK, which contrasts with the situation in many other countries. India has an annex to the Government Budget that covers tax reliefs, but we do not have that in the UK. There is a real contrast with how we assess spending decisions in terms of direct spending programmes as against foregone income in the form of tax expenditure. There is a huge gulf there and we need to deal with that. The OBR could play a part in that, and we should think about that for the future.

The Labour party’s position remains that the core role of the OBR should be to scrutinise the Government’s fiscal and economic plans, but it should do so in a more expansive and open manner than previously, as I have explained. An extension of its remit to cover party manifesto pledges might be warranted, but if it occurs it must be in concert with an extended remit to examine governmental spending commitments and it must be adequately resourced to enable it to fulfil that task. I am aware of the Dutch example that the hon. Member for Ochil and South Perthshire referred to. I was pleased to see him inter alia praising the role of trade unions in decision making, which was slightly unexpected but good to hear. We can usefully learn from the Dutch example and the extended remit to look at Government spending plans. We had an interesting discussion about the Australian situation that the hon. Member for North East Derbyshire mentioned.

The hon. Member for Ochil and South Perthshire referred to the CBO and its more extensive role in ongoing policy making—not just at Budget time; it looks at discrete policies on an ongoing basis. Before we talk about potentially extending the OBR’s remit in that manner, it is important to focus on the activities of the Treasury first. In many cases the Treasury should carry out analyses, anyway. There is the question of independence; I do not take that for granted. But in many policy areas we do not even get to the level of understanding what the Treasury analysis is, let alone then having that independent analysis as a guarantor.

I do not agree with the hon. Member for Aberdeen North on everything, but I did agree with her on Brexit. Internal analysis has been conducted within the Treasury, but it has been like trying to get blood out of a stone to allow Members, let alone the public, to see that analysis. If the Treasury were a little more open about its processes, we would be in a different situation and we could then consider whether there should be additional independent analysis, but let us have more open analysis from the Treasury first.

Some Members referred to Labour’s spending plans. I regret that the hon. Member for North East Derbyshire tried to wriggle out of my question about where his party’s spending plans were set out in pounds and pence. He spoke elegantly and eloquently, but he managed to wriggle out of it because his party failed to include any costings anywhere in its manifesto at the general election. As my right hon. Friend the Member for Hayes and Harlington (John McDonnell) has commented, the only numbers in the Conservative manifesto that we have been able to see are the page numbers. We have seen nothing about how different approaches to spending would be carried out. We have seen a similar approach continuing in Government. The huge elephant in the room in this discussion concerns plans for NHS spending. A commitment has been made to a huge boost to NHS spending, but we have no idea where the additional funding will come from. Initially there was a suggestion that it would come from a so-called Brexit dividend, but it does not appear from the current approach to Brexit that there will be any such dividend. We heard whispers about where the funding will come from, but they are just whispers.

[James Gray (in the Chair)]

In the context of the OBR.

[Anneliese Dodds]

In the context of the OBR, the problem is that we have just heard from some Members that the OBR’s remit should be extended to cover party political manifestos, and we have the Government making a huge spending commitment during its period in office, and yet no details have been provided for how the spending will arise. Many public servants are reading the tea leaves, not least those in the police, and assuming that the spending will come from cuts elsewhere. They are probably not wrong to do so.

Some Members referred to the discussion of Labour’s spending plans at the general election. It was possible to have that discussion because Labour had set out its spending plans in our grey book. I can see the hon. Member for North East Derbyshire smiling. He will smile even more when I provide him with some summer reading: Labour’s grey book, “Funding Britain’s Future”. It is very simple to read. I am sure other Members who are former accountants will find its layout very simple because it sets out on one side where more revenue will be derived and on the other side where expenditure will go. It is enormously simple to understand.

[Anneliese Dodds]

I would be very happy to do so.

[James Gray (in the Chair)]

To intervene only about the OBR, I call Luke Graham.

[Luke Graham]

I look forward to that interesting summer read. Hopefully the hon. Lady will support my proposition that those figures would have even more credibility if an independent body could check them to ensure that the assumptions and figures featured in that document are credible, real figures and not socialist fantasy.

[James Gray (in the Chair)]

To speak only about the OBR, I call Anneliese Dodds.

[Anneliese Dodds]

I absolutely will, Mr Gray. The hon. Gentleman suggested that the OBR’s remit could be extended to look at such figures. As I said, Labour is not against that. We might be interested in looking at that, but the figures have to be provided in the first place. Sadly that was not the case for his party at the last general election. I humbly suggest that as a first step towards that outcome, his party might follow mine and set out some of its spending. That would mean that we could have a discussion with other independent bodies in advance of an election, as occurred with Labour’s spending plans.

We had a useful, productive discussion with the Institute for Fiscal Studies, which looked into our assumptions. There were differences of view in relation to some areas of spending. For example, Labour suggested that it should not be assumed that removing the pay cap, which is something that we have committed to do for public sector workers, will be only a cost, because revenue would be positively affected by the additional national insurance that would arise from slightly higher wages. The IFS does not take that into account, so we had different assumptions on that. However, Labour wants to have that debate and discussion. To do that, we need to have the figures out there in the first place.

I thank the hon. Member for Ochil and South Perthshire again for securing the debate. I also thank all those in the Chamber and, particularly, those who work so hard for the OBR to ensure that we have an independent, unbiased assessment of our public finances. Finally, I wish everyone a very enjoyable summer.

--- Later in debate ---

[James Gray (in the Chair)]

Before I call the Minister, may I clarify something that has been worrying me throughout the debate? When I was brought up in the foothills, I remember those hills being called the “Ochils” as in “ochre”, rather than the “Ochils” as in “Och aye the noo”. Perhaps the hon. Member for Ochil and South Perthshire (Luke Graham), who led the debate, will clarify precisely how we pronounce the name of his constituency.

[Luke Graham]

It is the former, not the latter.

[James Gray (in the Chair)]

Thank you. I call the Minister.