Public Sector Borrowing Requirement (Hansard, 14 December 1995)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, the Budget forecast of the PSBR for 1996–97 was£22.5 billion. That will represent a halving of the PSBR over the previous three years. In 1997–98 it is projected to fall even further, down to a level of£15 billion.

§ Lord Barnett
My Lords, the Minister overlooked telling the House that there was a £7 billion underestimate for both 1995–96 and 1996–97. I understand that because I am very much aware of what was said in Paragraph 3.58 in the Red Book—that errors and uncertainties and risks in making forecasts can apply. I am sure that the Minister will agree that, at the 1370 same time, these are fairly large errors, especially as the Chancellor has also forecast that by the end of the century he is hoping to have a zero PSBR.

A Noble Lord
Hear, hear!

§ Lord Barnett
My Lords, I am glad to hear somebody opposite saying "Hear, hear!". Can we take what I have said to mean that that is a firm forecast or is it a firm but flexible forecast in order to allow for any other changes that the Chancellor has in mind for November next year?

§ Lord Mackay of Ardbrecknish
My Lords, as I explained to the noble Lord the last time we had a Question similar to this one, we hope to move the PSBR towards balance towards the end of the decade. But as the noble Lord knows, the PSBR is actually the difference between two significantly large figures; namely, what the Government spend and what they take in. In fact, the errors as regards those two significantly large figures are not very great when one looks at the mathematics of error. Indeed, over a 10-year period the errors in the PSBR have run out at something like three-quarters of 1 per cent. of GDP, which comes to about£4.5 billion. That is large in comparison to the sort of figure of£22 billion which we are talking about, but it is not large when one considers the two very much larger figures which, when taken together, make up the PSBR.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that the good economic figures that were announced yesterday—that is to say, the reduction in the basic rate and in unemployment—augur well for the future? Does he further agree that it augurs well for the future in that the PSBR will go down?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is right. The PSBR is but one of a number of figures that measure the health of our economy. Other figures which do that are the inflation figures, which are showing a continuing downward trend, as my noble friend said, and the interest rate reduction announced yesterday. That will be warmly welcomed by business, commerce, housing and everyone else; except, perhaps, the party opposite.

§ Lord Peston
My Lords, I believe that we all know the elementary arithmetic. The error in the difference of two large figures is itself very large relative to the difference. That is the correct way of putting it! But the fact remains that the Government ask us to take these figures seriously. The difficulty, particularly having listened to the reply to my noble friend, is this: do the Government want us to take the figures seriously or not? They can either say that the difference is subject to enormous error, so forget about it, or they can say that the PSBR actually matters. I thought they took the view that it did. Does the Minister agree, therefore, that it then follows that if the PSBR turns out to be larger than projected, which it has, one cannot wriggle around and say that that is due to the errors? Does the Minister further agree that it is due either to a serious mis-forecast or a failure of policy?

§ Lord Mackay of Ardbrecknish
My Lords, I am grateful to the noble Lord for so eloquently putting what 1371 I was trying to say at the beginning of his question. He makes the point in answer to his own question, because the PSBR is important. But one can only judge it within the margins of error that operate for those figures. Perhaps I may just remind him of what his noble friend Lord Barnett said in his interesting book, Inside the Treasury. He began Chapter 12, headed "'Fiddling' the Figures", with these words: In retrospect it will surely be seen that what baffled and dominated the life of the 1974–79 Labour Government was what I called 'four damned letters'—the PSBR".

§ Lord Boardman
My Lords, as a major contributor to the PSBR and those two very large figures—public expenditure and gross domestic product; which are now at 42 per cent. this year and will be down to under 40 per cent. in two years time—is it not perhaps somewhat bizarre, if I may use that term, that the noble Lord, Lord Barnett, raises this Question because when he was Chief Secretary to the Treasury that figure was at an all-time record of 47.5 per cent.?

§ Lord Mackay of Ardbrecknish
My Lords, perhaps that is why the noble Lord wrote the words in his book which I have just quoted. The serious point about the PSBR, which the noble Lord, Lord Barnett, recognised as being of importance, is that it is one of the balancing figures between government spending and what they have to take in taxation. We are firmly of the view that we should get the PSBR down as low as possible and to do that one has to control government spending and yet at the same time ensure that the tax burden on people is not insufferable.

§ Lord Barnett
My Lords, I am glad that the Minister has seen fit to read my book and, I hope, for the second or perhaps the third time. It may be that he will quote other parts of it later. Can he now answer the simple question that I posed as my first point? Is the Chancellor's forecast for the end of the century firm but flexible or firm?

§ Lord Mackay of Ardbrecknish
My Lords, the Chancellor's forecast for the end of the century is obviously just that: it is a forecast. Given the margins of error that we have discussed and agreed, and which the noble Lord, Lord Peston, has put more elegantly than I did, they have to be looked at within those margins of error. That is the forecast that my right honourable friend has put forward.

§ Lord Ezra
My Lords, will the noble Lord indicate whether the PSBR estimate for next year is dependent on a growth in the economy of 3 per cent., as indicated by the Chancellor in his statement, which is generally regarded as being over-optimistic?

§ Lord Mackay of Ardbrecknish
My Lords, it remains to be seen whether or not it is over-optimistic. The forecast is dependent on a number of factors, including the rate of inflation, which, as I have already pointed out, is coming down, and on the level of growth. With the decline in interest rates yesterday—for which 1372 thanks are due to my right honourable friend for his sensible economic policies—we hope that growth will hit that 3 per cent.