PSBR: Method of Calculation (Hansard, 26 April 1994)

§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
My Lords, no. The public sector borrowing requirement is a measure of the difference between the public sector cash outlays and its cash receipts, and there are no plans to change this.

§ Lord Barnett
My Lords, that is a rather disappointing reply. I had hoped that the Minister would be more helpful because I was trying to help him. Clearly, it would be helpful and sensible to distinguish between capital expenditure, with a clear economic return, and current expenditure on a regular rather than on an annual basis. I do not make that suggestion in order artificially to lower the borrowing requirement. In any case, whatever the borrowing it must be financed. Would it not be more sensible to know clearly that some of the expenditure relates to a well-defined capital cost? Would that not be helpful to any government?

§ Lord Henley
My Lords, the noble Lord is correct; we distinguish between the two on an annual basis. Perhaps I may refer him to page 138 of the Red Book. I see that the noble Lord nods; he knows the Red Book as well as any of us. It distinguishes between capital receipts and revenue receipts and vice versa. Whether that would be possible on a monthly basis is another matter. We believe that the PSBR as it stands provides a timely and accurate measure that is of considerable use to the Government.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that while the reduction in the projected public sector borrowing requirement for last year is down, that is no reason for any relaxation on public expenditure? Does he further agree that with the recession now behind us the public sector borrowing requirement must of necessity decrease and that only in that way can we have tax reductions rather than an increase in public expenditure?

§ Lord Henley
My Lords, my noble friend is absolutely correct; the PSBR is some £4 billion lower than originally forecast. However, at over 7 per cent. of GDP it is still much too high. It was only ever higher as a percentage of GDP in the mid-1970s. Like my noble friend, I do not believe that now is the time to relax the 512 various initiatives which my right honourable friend the Chancellor of the Exchequer announced in last year's Budget.

Lord Bruce of Donington
My Lords, will the Minister give the House an assurance that he will not take his own Treasury officials too seriously when they present the figures to him? Will he give the House a further assurance that the methods used at present are substantially in conformity with those used during my noble friend's tenure of office and that the figures were done at lunchtime in the Reform Club on the backs of envelopes and could be guaranteed plus or minus £4 billion one way or the other?

§ Lord Henley
My Lords, obviously I cannot answer for the noble Lord's noble friend and his tenure as Chief Secretary to the Treasury. I can assure the noble Lord that I shall continue to take very seriously the advice of the Treasury officials. I can also assure him that although we originally forecast £50 billion as the PSBR, and it was somewhat lower at £46 billion, that was still within the margin of error as forecast in the previous two Budgets.

§ Lord Callaghan of Cardiff
My Lords, may I make it clear that it was done at the Athenaeum?

§ Lord Henley
My Lords, I note what the noble Lord says.

§ Lord Wyatt of Weeford
My Lords, as the forecast for the PSBR was wildly overestimated, will the Minister assure us that as the decline in the PSBR continues the Government will not make the same mistake this time? Will he ask his right honourable friend the Chancellor of the Exchequer when he will announce tax cuts without increasing expenditure?

§ Lord Henley
My Lords, I refer the noble Lord to the answers I gave to my noble friend Lord Clark and the noble Lord, Lord Bruce. The PSBR was lower than forecast but not vastly lower, as the noble Lord appears to suggest. As I made clear to the noble Lord, Lord Bruce, it was well within the average of forecast errors of the past 10 years.

§ Lord Ezra
My Lords, while the distinction between public revenue and capital expenditure in the recent unified Budget is much to be welcomed, does the Minister agree that that is only one part of the story? The other part of the story is doing something about the figures that are thus revealed. Is it not disturbing that the figures show that the prospective capital expenditure is likely to diminish and that it will be lower in the next three years than in the previous three years?

§ Lord Henley
My Lords, I believe that the important figures are the overall figures. We remain committed to our medium-term fiscal objective of bringing the PSBR back towards balance over the medium term.

§ Lord Eatwell
My Lords, is the noble Lord aware that the PSBR as measured has always been regarded as a deeply flawed statistic because current revenues are padded with capital receipts in a way which would be illegal in private sector accounting? Dos the noble Lord 513 recall telling me on 21st March at col. 497 of Hansard that when the deficit is correctly measured, the Government have been in deficit in every single year except one since 1979? When the Chancellor of the Exchequer said yesterday that he expects to balance the budget in four years' time, was he referring to that true measure or to the bogus PSBR?

§ Lord Henley
My Lords, I do not accept that the figures are bogus. We have always made clear that the PSBR is and always has been a cash measure. It is not a national accounts measure, such as may be used in some private companies, as the noble Lord seems to suggest. It records in a timely and accurate manner—the virtue of the PSBR is the fact that it is both timely and accurate—the majority of cash transactions, as and when they take place, privatisation proceeds and other financial transactions.

§ Lord Harmar-Nicholls
My Lords, while we shall never agree about the economy, is it not possible to get both sides of Parliament to agree a measuring rod which really tells the true story instead of skirting round all the verges, producing results which do not mean much?

§ Lord Henley
My Lords, I do not know whether we can get both sides of the House to agree. I seem to remember that back in the early 1980s, some 360-something economists all agreed. They all agreed, and they were all wrong.

The Earl of Halsbury
My Lords, long ago we kept our accounts above and below the line. Is there anything to prevent our returning to that excellent system of accountancy?

§ Lord Henley
My Lords, that was a very different system. We have been using the PSBR now for some 20 years and, as I made clear, we believe that it is both a timely and accurate measure of what we are trying to record.

§ Lord Barnett
My Lords, I am sorry that the Minister has been so defensive. As I indicated, I am not being offensive. I am trying to help him, as is everyone, by seeking a clearer definition of public expenditure. If the noble Lord is not able to give me a reply today, will he consider the matter and then let me know whether or not he agrees with that?

§ Lord Henley
My Lords, as I made clear in my first supplementary answer to the noble Lord, we distinguish on an annual basis between capital and revenue receipts. The noble Lord accepted that. I said that I doubted whether it was possible to do that on a monthly basis. If the noble Lord wishes me to take that matter away and consult those who advise me, I shall do so and come back to the noble Lord by means of correspondence.

§ Lord Eatwell
My Lords, as one of the 364 economists who signed the letter in The Times, may I remind the noble Lord that we argued that maintenance of the Government's policies would lead to a sustained higher level of unemployment? That is exactly what has happened under this Government.

§ Lord Henley
My Lords, I believe that the noble Lord will accept that he was wrong about many other parts of the letter.