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The structural budget deficit is an estimated deficit when the economy is operating at an estimated normal level. The OBR finds that this is worse than was reported in the March Budget. Why? The problem is estimating what is the normal level of the economy and how far below it we are now. The OBR makes a crucial assumption: that instead of the economy operating 6 per cent below normal in 2009, it was operating only 4 per cent below normal. Everything hangs on that single, crucial assumption. For if we are nearer normal operation than we thought, then the deficit under normal circumstances would be bigger than we thought. But what about this assumption? The OBR admits that it is "very tentative". It says:
"Estimates of the underlying supply potential of the economy and the amount of spare capacity are uncertain at the best of times. In the aftermath of the financial crisis, which is likely to have had an adverse effect on the supply potential of the economy, such estimates are subject to greater uncertainty than usual".
Then we have the debt interest figures, of which Mr Osborne makes so much. But again he cannot resist fiddling the figures by giving the total of debt
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The Statement also makes much of the independence of the OBR-an independence which we applaud. When the Minister replies, will he confirm that all the assumptions in the forecast for Mr Darling's March Budget were audited independently by the National Audit Office, and that the assumptions in the OBR report have not been so independently audited? Would he also confirm that it is normal practice that ONS statistics are seen by Ministers just 24 hours before their release? Would he tell the House when Ministers had sight of the OBR report? What is remarkable about the OBR is that it demonstrates how damaging would be the substantial cuts that the Government declare that they plan to make in public expenditure. The report demonstrates that the measures taken by the previous Government have set the economy on a path of steady deficit reduction, halving the deficit in three years, and setting the economy on a path of fiscal stability. All that will be threatened by the deficit hysteria of the coalition. The OBR report demonstrates with unerring clarity that their masochistic desire for an age of austerity is not only bizarre but unnecessary.
Lord Sassoon: I thank the noble Lord, Lord Eatwell, for his points, but it really is not a picture of the public finances that this Government have inherited that I recognise at all, or of the history nature of the formation of the OBR and the publication today of this astonishing new document which, for the first time, lays out transparently and independently the forecasts and numbers on which the Chancellor can form his budget. A position in which the public sector net debt is forecast to continue to rise from the 2009-10 level of £53.5 billion up to £74.4 billion at the end of the forecast period in 2014-15 speaks for itself. The reason that the deterioration in the numbers is so striking today is partly because the structural deficit turns out to be significantly worse and the sustainable growth rate to be not nearly as it appeared from the numbers that the previous Chancellor set out, which were thought to be completely incredible by forecasters at the time-and the OBR has confirmed this today. The document also sets out that, even in the numbers that the Chancellor presented in his March Budget, £44 billion-worth of cuts were assumed which were not explained anywhere in those numbers. They are set out for the first time today in a full forecast of total managed expenditure, for the full five-year forecast period. So the document exposes the total size of the inheritance that we were left-the fact that the plan for dealing with the deficit did not exist and that the structural problems of the economy are far worse. All we have in response from the noble Lord is to pick at the quite proper caution with which Sir Alan Budd and the OBR present their numbers. This is the first time that numbers like this have been presented. They have presented them quickly and at a time of an inheritance of huge problems in the economy, and all that the noble Lord can do is draw attention to the proper caution with which the OBR has rightly presented its numbers.
The noble Lord also questions the independence of the OBR's numbers in relation to those presented in the past by the Treasury. It is indeed the case that Treasury numbers have been ticked up by the National Audit Office, but it is false to compare an independent forecast produced by the Office for Budget Responsibility with the NAO audit of the Treasury numbers.
In answer to a question from the noble Lord about when the Chancellor saw the forecast, I assure him that an initial view of the numbers was shown to the Chancellor on Friday 28 May with a further update on Thursday 3 June. The OBR then shared the report with the Chancellor on Wednesday 9 June.
It might help further to clarify that the document that sets out the forecast is not required to be audited by the NAO under the code for fiscal stability in the Finance Act 1998, which applies to the Budget itself, although I do not think that the noble Lord was suggesting that the OBR numbers should be subject to NAO scrutiny.
Lord Barnett: My Lords, I have not had the opportunity to go through as much of the detail as my noble friend Lord Eatwell, who I thought did very well and exposed so much of this so-called "independent" report. We were told just now in an answer by the Minister that the Chancellor saw some figures on 28 May, so the so-called "independent" OBR was consulting the Treasury all along. Is that true? Was it really being consulted all along, or is it truly independent-any more independent than all the other "independent" forecasts we get from all kinds of sources?
More important is the accusation by the Chancellor that the figures previously issued in the name of Treasury officials, not by the former Chancellor, were dishonest-that they were fiddled by Ministers and yet Treasury officials allowed them to go out in their name. Is that not rather insulting of officials?
More seriously, how many Treasury officials who were doing this job before are still there? Or are they now working for the OBR? Perhaps the Minister will tell us. He also referred to this five-year forecast. Most people, including myself, would be reluctant to forecast a few months ahead, let alone five years. Will he reassure us that that forecast will not be amended every few months by the independent OBR?
More importantly, will he confirm what the assumptions were for unemployment if the Chancellor's deficit reduction programme, to be announced in the Budget, is anything like the rhetoric we hear at the moment?
Lord Sassoon: I am grateful to the noble Lord, Lord Barnett. He enables me to confirm the nature of the independence of the OBR. To call into question the independence of Sir Alan Budd and his committee-as he went on to say, that is not the most important thing, so perhaps I should pass over it and move on.
I also rather resent, on behalf of the Treasury officials with whom I work every day, the thought either that they were in some way party to some conspiracy before or that they are not capable of doing work,
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Lord Sassoon: The forecasts are transparent; people have been able to see how it has formed its views on all its forecasts. As for Treasury Ministers in the past, they have plucked numbers out and it has been non-transparent. Here we have a degree of transparency by which you can hold the Treasury to account, going forward. The noble Lord also asked whether the five-year forecasts will be amended very regularly. Certainly, the OBR will be publishing in conjunction with the Budget again, and, as it said in its document and terms of reference, it will be publishing its forecasts regularly.
Lord Jones of Birmingham: My Lords, we have just witnessed a great display of who said what to whom, and of "Oh yes he did" and "Oh no he didn't", that would frustrate every businessman and woman in this country, because-I hope that the Minister will comment on this-without doubt, whoever is right or wrong, this country is in the economic dippy-doo. The only way out of this is to trade our way out, to generate the wealth that will create the jobs in the private sector and generate the taxation to pay down the deficit.
When the Minister was repeating what the Chancellor of the Exchequer had said in another place, at the end I heard that next week we are going to hear what he intends to do about it. I urge the Minister to go back to his colleagues and, whatever they do next week and however or whenever they cut-when we hear so much about public spending, of how much or how little we are going to spend and, at the end of the day, of ring-fencing it or cutting it more quickly-to ask whether anybody has ever thought about earning the stuff, because without earning it you cannot cut it. I would welcome a comment on what we are going to do about generating the business growth that will render all of this at least relevant.
Lord Sassoon: My Lords, the noble Lord, Lord Jones of Birmingham, raises a critical point: how are we going to get growth going again, as none of this public expenditure gets paid for unless we get the private sector economy growing strongly? While my right honourable friend the Chancellor will be setting out in his Budget next week the important strands of our growth strategy, I stress that what is so critical about the creation of the OBR and the early action that was taken on the initial £6 billion of cuts is the credibility that gives to the new Government's plans to grip the appalling economic situation we have inherited. That has already started to give confidence to the markets, as has been seen in the low interest rates. The critical importance of keeping interest rates low has to be one of the first foundations on which we can rebuild sustainable growth in the private sector.
Lord Higgins: My Lords, arising from the point that has just been made, does my noble friend agree that while it is important to grow our way out of the problem it will not be the case that we can grow our way out of the structural deficit? By definition, that is something quite separate from the possibility of growing one's way out. This is indeed a very depressing report, although it is extremely helpful to have the figures which have been given. I have two points for my noble friend.
First, it is clearly extremely important that we should reduce the deficit as soon as possible, but what has not been mentioned at all is the extent to which it is proposed to fund the deficit meanwhile. That does of course have very important implications for the level of aggregate demand. Can my noble friend say what the policy is on funding the deficit as we go along in advance of actually managing to reduce it?
Secondly, in the same context, one of the extraordinary things that happened under the previous Government was the policy of so-called quantitative easing. There is a general assumption, not least in the financial press, that this to some extent increased the money supply and therefore increased economic growth. As far as I can establish, that simply is not true, certainly in relation to the size of the so-called quantitative easing. The reason is that, while the Bank of England was increasing the quantity of money by purchasing it in the market, the Debt Management Office, which Mr Brown had removed from the Bank to the Treasury, was busily selling debt, so the two totally cancelled each other out, as far as one can establish. Does my noble friend agree that it is important to get the Debt Management Office back in the Bank of England so that two completely contrary policies are not pursued at the same time?
Lord Sassoon: I am grateful to my noble friend Lord Higgins for his questions. Funding the deficit will be critical. As I pointed out, the level of borrowing will continue to rise throughout the forecast period to £74.4 billion in public sector net debt terms in 2014-15. The scale of the task should not be underestimated. What is critical to funding the deficit in a safe way is maintaining the UK's credit rating and central to that is having a credible plan. The foundation stone of that credible plan is the revelation today of the true state of the nation's finances, with some decent forecasts five years out on which all else, including the funding plan, can be built.
My noble friend's second question was about the mechanics of selling debt. The Debt Management Office operates under a clear and transparent plan, which sets out exactly what the Treasury requires it to raise in the markets each year, consistent with the Budget forecasts. So far this year, the office has carried out that plan successfully and I have every expectation that it will continue to do so.
Lord Desai: My Lords, if the Office for Budget Responsibility is to be independent, it is essential that its report should not be made a political football-we do not discuss the MPC's report in the manner in which we discuss the OBR's report. I particularly
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Lord Sassoon: My Lords, the noble Lord, Lord Desai, has made an important point by drawing attention to the huge illumination, to use his word, of the public finances and the forecast going forward. He makes some interesting technical points about how some of the data should be forecast. All I can say is that, if Sir Alan Budd is not listening now, I will take back the noble Lord's points and relay them to him, as it is for him to decide how he lays out his forecasts in future.
Baroness Noakes: My Lords, I congratulate the Government on their commitment to a level of transparency that we have never before seen. This is a wonderful first move. We should also congratulate the Office for Budget Responsibility on producing in a very short time what I think people have to accept is a very impressive document.
Does the Minister agree with my noble friend Lord Higgins that the report is a depressing read? Nowhere is it more depressing than on the fact that the structural deficit is much worse than we were previously led to believe. That makes the call from the noble Lord, Lord Eatwell, for an apology quite inappropriate, as we were led to believe that the structural deficit was different. The noble Lord, Lord Eatwell, has tried to pick holes in these calculations, but does my noble friend agree that realism and transparency will serve the people of this country much better than unwarranted and hidden optimism, which is what we had from the previous Government?
The Office for Budget Responsibility will be an important part of the way in which Budgets and economic management are handled going forward. It is clearly important that the status of the office is put on to a permanent footing as soon as possible, so that we do not have to take the criticisms from the Benches opposite about its independence and so on. Will my noble friend say when we are likely to get legislation to achieve that?
Lord Sassoon: I am grateful to my noble friend Lady Noakes for her remarks and I echo her congratulations to Sir Alan Budd, the OBR and the Treasury officials who have been moved across into the OBR, as what they have produced in such a short time is a remarkable achievement. I agree that the report makes a depressing read in that it exposes how
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Lord Falconer of Thoroton: I apologise to the noble Lord, Lord Sassoon, for not being here when he made his Statement. I was trying to get here but unfortunately I was blocked by the Armada in the Royal Gallery and had to go round another way. I thank him for repeating in this House the Statement made by the Chancellor of the Exchequer.
I am struck by the harshness of the Minister's attacks on the previous Government and by the fact that he says that what the Office for Budget Responsibility has done is transparent. The difficulty is that what it has done has been done incredibly quickly and, as the noble Lord, Lord Eatwell, pointed out, has inevitably been based on assumptions that are difficult to make. The most significant thing is the political interference. I was amazed when the Minister said that the Chancellor of the Exchequer had spoken to Sir Alan Budd on 28 May, on 3 June and again on 9 June. In order to deliver on transparency, will the noble Lord, Lord Sassoon, tell us what was said in those conversations? If not, there will be doubt about the transparency.
Lord Sassoon: My Lords, first, I am delighted that the noble and learned Lord, Lord Falconer, was not defeated by the Armada and managed to come through triumphantly, although it sounds as though it was a close-run thing. What I said and what I will repeat is that the Chancellor saw an initial view of the forecasts on Friday 28 May and saw a further update on Thursday 3 June. The OBR then shared its report with him on Wednesday 9 June. I am completely at a loss to know why sharing numbers and the final report should in any way impinge on the office's independence-
Lord Falconer of Thoroton: Perhaps I might explain and give the noble Lord an opportunity to comment. This is the reason why the rule was made that numbers were not to be shared with Ministers except during the few days before. I am sorry that I did not make that clear.
Lord Sassoon: I am grateful to the noble and learned Lord for the clarification, but to compare the process around the formulation of a report by the OBR with the release of numbers by the ONS is to compare chalk and cheese.
Lord Newby: I begin by agreeing with the noble Lord, Lord Desai, who said that what is most welcome about this report is the extent to which it explains the uncertainties that the Government face in producing detailed economic forecasts. I also find the fan charts very welcome. It is extraordinary that the noble Lord, Lord Eatwell, finds them risible when they are used, as the Minister said, by the Bank of England and reflect a better view of reality than a single headline figure.
When the Office for Budget Responsibility was being established, the Government said that its members would be available to give evidence to relevant parliamentary committees. Given the importance of the work of the office, will the Minister urge its members to come before the relevant committee of your Lordships' House-namely, the Economic Affairs Committee-so that there can be a forensic discussion of their work, along the lines that noble Lords would clearly like to see?
Lord Sassoon: I am grateful to my noble friend Lord Newby. I will certainly pass on his request that members of the OBR come forward as he suggested. I am sure they would want to. It would reinforce the fact that, as they clearly set out in the foreword to their document, all the judgments in the forecast have been made or agreed by the Office for Budget Responsibility. There has been no ministerial involvement, so it would be entirely right that the office, rather than Treasury Ministers or anybody else, should answer for its forecasts.
The Parliamentary Under-Secretary of State, Energy and Climate Change (Lord Marland): My Lords, with the leave of the House I will repeat a Statement made by my right honourable friend the Secretary of State for Energy and Climate Change in another place. The Statement is as follows.
"The House will wish to join me in expressing our deepest sympathy for those bereaved or injured in the explosion on 20 April, and for all the individuals and communities affected by spilling oil, or fearing that they will be affected over the days and weeks to come. Our thoughts must be first with them. On 20 April, an explosion and subsequent fire on board a drilling rig operated by Transocean, under contract to BP, in the Gulf of Mexico tragically killed 11 workers. On 22 April, the rig sank. On the seabed, 1,600 metres below, substantial quantities of oil were leaking into the ocean. The blow-out preventer, which should have sealed this leak, failed. The causes of the accident are now subject to a US presidential commission of inquiry and to civil and criminal investigation.
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