HL Deb 20 April 1993 vol 544 cc1364-6

2.42 p.m.

Lord Eatwell asked Her Majesty's Government:

What proportions of the projected figures for the PSBR for each of the years 1993–94 to 1997–98 are cyclical, and what proportions are structural.

The Minister of State, Department of Transport (The Earl of Caithness)

My Lords, it is hard to make precise estimates of the proportion of the Budget deficit which is structural and the proportion which is cyclical. The measures announced in the Budget will improve the structural balance by 1.5 per cent. of GDP by 1995–96. Adherence to the tight public expenditure plans announced in the Autumn Statement will achieve a further improvement in the structural position.

Lord Eatwell

My Lords, I am grateful to the noble Earl for that Answer. I am particularly grateful since the last time I asked this question he refused to answer it. Given that the PSBR figures announced today show an out-turn for 1992–93 which is already £1.5 billion in excess of that which the Chancellor forecast just one month ago, will the Minister confirm that it remains the Government's policy to balance the budget over the cycle? Will he further confirm that it remains the Government's policy that structural deficits should be met by increased taxation?

The Earl of Caithness

My Lords, I am delighted to have this opportunity to give the answer to the noble Lord that he sought earlier now that it is relevant to the Question on the Order Paper. I am even more pleased to give him the precise information that he wanted. It is true that over the term we seek to get a balanced budget.

Lord Mackay of Ardbrecknish

My Lords, has my noble friend noted that if the noble Lord opposite would contain himself and his impatience he would see very shortly the cyclical nature of the PSBR? I say that because the other news on the tapes today not used by the noble Lord opposite is that the CBI is expressing optimistic sounds about consumer spending, the building societies are expressing optimistic sounds and indeed the Stock Exchange is responding to those optimistic sounds.

The Earl of Caithness

My Lords, I am grateful to my noble friend for his question. I am sure that the whole House will welcome some of the encouraging signs that we see in the economy.

Lord Bruce of Donington

My Lords, is the noble Earl aware that opinions differ widely as to what is cyclical and what is structural? Does he agree that what is really important from the economic standpoint is whether the forecasts are in accordance with what some renowned economists have referred to as rational expectations?

The Earl of Caithness

My Lords, the noble Lord is right in his first question. That is why I said it is very hard to make precise estimates of the proportion of the Budget deficit which is either structural or cyclical. Indeed, Professor Currie has argued that half the deficit is structural and Professor Minford has said that none of it is.

Lord Eatwell

My Lords, is the Minister aware that Mr. Christopher Riley, who is the senior Treasury official in charge of medium-term forecasting, told the Commons Treasury and Civil Service Committee that one-third of the deficit is structural? Is he further aware that the answer which he gave to my first question suggests that the Government intend to raise taxes by a further £14 billion in 1995?

The Earl of Caithness

My Lords, with regard to the noble Lord's first question, what he says coincides with the view of my right honourable friend the Prime Minister when he said that about two-thirds of the level of the PSBR might be cyclical. But with regard to his second question, this is an imprecise science and the answer is that he takes the wrong interpretation.

Lord Jenkins of Hillhead

My Lords, will the noble Earl accept that I thought that his initial answer was rather forthcoming but that then he subsequently confused me? If it is his view that one cannot distinguish between the structural and cyclical aspects of the deficit, why did he give a very precise figure in saying that the Budget would reduce the structural deficit by 1.5 per cent.?

The Earl of Caithness

My Lords, I am sorry that the noble Lord is confused. If I may make myself absolutely clear to him, I said that it was very hard to make precise estimates of the proportion of the Budget deficit which is structural and the proportion which is cyclical.

Lord Ashley of Stoke

My Lords, when the noble Earl says that my noble friend misinterpreted the second answer, is that a categoric assertion that there will be no increase in taxation?

The Earl of Caithness

My Lords, taxation is a question for the Budget, which is a matter for my right honourable friend the Chancellor of the Exchequer.