Government Borrowing (Hansard, 18 October 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture Media and Sport (Lord McIntosh of Haringey)
My Lords, Budget 2004 showed that the Government are on track to meet both the golden rule and the sustainable investment rule over the economic cycle. An interim forecast update for the public finances will be set out in the 2004 Pre-Budget Report in the usual way.

§ Lord Barnett
My Lords, I thank my noble friend for that reply. In view of the importance of the matter I take it that we will have the Pre-Budget Report in this Session rather than the next.
I am sure my noble friend must be aware that many independent forecasters have suggested that the rule will be breached. If there were to be a temporary breach—and independent forecasters are frequently wrong—is it the Chancellor's view that his economic policy would not change and that the taxation and public expenditure policy would remain the same?

§ Lord McIntosh of Haringey
My Lords, as my noble friend says, the independent forecasters are frequently wrong. Their average has consistently been worse than the Treasury's predictions. Of course I listen to what the IFS says, I listen to what the Ernst&Young ITEM Club says, I listen to all the others and I go away and make my own judgments. I listen to the Treasury's judgments as well.
As for a temporary blip in the golden rule, my noble friend Lord Barnett does not need to be reminded that borrowing was over the 3 per cent rule last year and 522 ECOFIN decided that that breach of the golden rule was not excessive for reasons which are very much in line with our view of the stability and growth pact.

§ Lord Dixon-Smith
My Lords, I understand the golden rule in a limited way, but it depends on the economic cycle about which I have some uncertainty. Can the Minister tell the House the date on which the economic cycle began and the date on which it ends?

§ Lord McIntosh of Haringey
My Lords, the generally accepted view is that the current economic cycle started in the fiscal year 1999–2000 and will finish in the fiscal year 2005–06. In Budget 2004 we said that in that economic cycle we expect to be in credit by 0.1 per cent. If it is any consolation to the noble Lord, Lord Dixon-Smith, we expect that to continue until 2009.

§ Lord Newby
My Lords, given that there has been a lot of concern about the possibility of the Chancellor massaging the definitions to make sure that the Treasury keeps within the golden rule, will the Government consider establishing a fiscal policy committee—broadly analogous in some respects in terms of its independence to the Monetary Policy Committee—which could audit the assumptions which underlie the forecasts against which the golden rule is measured?

§ Lord McIntosh of Haringey
My Lords, I have heard those allegations. But since the House of Commons Treasury Committee—which is not notable for being subservient to the Treasury—said in the face of those allegations that the substance of the golden rule has not changed, we can avoid having an extra committee.

§ Lord Sheldon
My Lords, is not the life of the economic cycle rather more uncertain than my noble friend suggests? The beginning of the economic cycle can be assessed with some degree of confidence, but the end of the cycle some years hence is not known. As a result of this it is bound to be somewhat indeterminate. This gives the Chancellor of the Exchequer little leeway in meeting his forecasts.

§ Lord McIntosh of Haringey
My Lords, I agree that nothing is certain. No economist would say otherwise.
In responding to the noble Lord, Lord Dixon-Smith, I said that not only do we expect to be in surplus in the generally accepted definition of the current economic cycle which is to finish in 2005–06, but for the three or four years following that.

§ Lord Skelmersdale
My Lords, at the beginning of the cycle to which the noble Lord, Lord McIntosh of Haringey, referred, the Chancellor built up credits. Those are now being expended at a rate of knots. If this cycle goes on longer, will not those credits be totally used up and will we not start the next cycle with a deficit?

§ Lord McIntosh of Haringey
My Lords, that is precisely the point that I rebutted in my previous answer. I am not going to start making intermediate forecasts. We did this with Budget 2004 and we will do it again with the Pre-Budget Report.

§ Lord Peston
My Lords, why did my noble friend not point out that this is a matter of elementary arithmetic? Balance over the cycle means some years plus and some years minus. I cannot imagine what the Opposition think they are on about in suggesting that there is something wrong if we go in to a minus year. There will always be some minus years and some plus years. That is what balance means.

§ Lord McIntosh of Haringey
My Lords, my noble friend Lord Peston is arithmetically, logically and rationally correct. The point that the noble Lord, Lord Skelmersdale, was attempting to make was that if it was good at the beginning and bad at the end that did not bode well for the coming period. I had already rebutted that argument in my answer to the noble Lord, Lord Dixon-Smith.