Spring Forecast Statement

Lord Redwood Excerpts

Tuesday 17th March 2026 Lords Chamber

[Lord Redwood (Con)]

My Lords, I enjoyed the speech from the noble Lord, Lord St John, and I regret that I arrived in this place too late to hear more of his Lordship’s wisdom. I wish him every success with his new ventures.

The OBR is set up to fail. The Treasury asks it to perform an impossible task. As someone who has in past jobs had to advise and comment on economic forecast models, the one piece of advice I would give is to never have a spot forecast for something as difficult as a deficit or an inflation rate five years out. To make sure the OBR fails, the Government set it the task of forecasting without allowing it to make any variations to policy. We all know that, over a five-year period, there is going to be at least one general election, and sometimes Governments get so unpopular that there can be a very major change of Government, with a change of policy. We also know that, over a five-year period in this impatient world, Prime Ministers often get fed up with their Chancellors, or parties get fed up with their Prime Ministers, so there can be changes of personnel and a series of changes of policy from that as well. So, it is a totally unrealistic assumption.

What has the OBR done with its problems this time? The OBR tells us that inflation will be a very timely 2% in every year of the last four years of the forecast. I wish it was so, but experience says it is unlikely. The OBR says that the oil price will gently gyrate between $62 and $67 over the forecast period. I know that these are annual averages, so that reduces some of the volatile swings that we are seeing. But, again, that is a heroic or inaccurate forecast. I suggest that there will be considerably more volatility. If we got an early end to the war and things develop more favourably, you could even end up with considerably lower oil prices. In the meantime, obviously, we are all extremely nervous, the war continues, there is more disruption of oil trade and oil prices will stay very high.

One of the things that I fear the forecast is right about is that our own production of gas will halve. I fear that it will under current policies, and I add my voice to those who have already eloquently said that we should stop all this self-harm and get our own gas out, with more better-paid jobs and a lot of extra tax revenue—and, above all, less world CO_2, which is the main preoccupation of the Government. What is not to like? The forecast also says that our oil production will be down by about a third. That, too, is subject to the same analysis, and it would be much more sensible for us to deliver our own oil.

The worrying thing in the forecast, which has already caused some alarm in this debate, is that the OBR thinks that the cost of government borrowing is going to rise in every year of the forecast. We should remember that this is from quite a high base by recent past history, because, over the last 15 months, under Chancellor Reeves, the Government have been paying a higher rate of interest for longer-term borrowing for the whole of the 15 months than on the worst day’s spike under Liz Truss, which they regularly condemn as being an unacceptably high level of interest rates. This OBR forecast says that the interest rates are going to be even higher progressively, in a gentle upwards progression, over the whole forecast. Clearly, the OBR is worried, as we all should be, by the weight of debt already issued and by the progressive increase in the amount of debt over the forecast.

This brings me to my advice to the Government. They should change the remit of the OBR to concentrate on years 1 and 2 of the forecast, where there is more chance of getting it right, and they should amend their fiscal rules again. I know they are bringing it down from a five-year fiscal forecast rule to a three-year fiscal forecast rule, but many of the arguments against five years still apply to three years. The number is invented and will not actually ever take place. Year 5 or year 3 never comes, because it is a rolling forecast, so, in effect, there is no control over the deficit. We need a control over the deficit in years 1 and 2 that is real and biting, at least by moral shame and preferably by government decision. Then I think they would find it easier to keep the interest rates under control.

There was a touching ceremony in this very Chamber last week when the Government advanced their legislation to increase income taxation by reducing the generosity of certain pension-saving allowances. The most remarkable thing about that legislation that we were asked to approve was the date of its introduction, which is to be 2029 to 2030. Why choose such a late date? Indeed, it could well be after the next election, and there could even have been a change of government by then, who might not particularly want that legislation. I assume it is great Treasury intelligence and cleverness, because that, of course, is the control year it is currently on for controlling the deficit; and so clever people in the Treasury invented a tax increase, which actually has, according to the OBR, the magic property of a large increase in tax in year 1, and then it halves for all subsequent years. You therefore get the maximum deficit-breaking effect from putting that tax in in year 5 of the forecast, probably neatly after the general election.

This is creative accounting on a grand scale, and it is a surrogate for the real job of getting that deficit down, so I would suggest to the Government that they look again at their fiscal rules. In all the years we have had OBR forecasts of deficits and fiscal rules, we have seen a mushrooming of deficits and debt under successive Governments of all parties, so it is now trebled over the OBR period. Let us therefore have an OBR with a bit of bite. Let us give it a bit of proper independence. I know it is staffed with civil servants, and they work very closely with the Treasury, but it needs to be independent enough to accurately forecast the deficit in years 1 and 2 and to help the Government control it.