Public Borrowing: Golden Rule (Hansard, 31 January 2005)

§ Lord McIntosh of Haringey
My Lords, the 2004 Pre-Budget Report showed that, on the basis of cautious assumptions, the Government are meeting the golden rule over the current economic cycle, with a margin of £8 billion including the AME margin. The Government will meet the golden rule in the current 6 cycle and into the next, with a projected average surplus on the current budget over the period 2005–06 to 2009–10 of 0.25 per cent of GDP.

§ Lord Barnett
My Lords, I thank my noble friend for that not unexpected reply. However, I am sure that he is aware that many distinguished economists—"distinguished" may not necessarily be the right word—have forecast that there will be a breach in the golden rule. In the past, they have not been entirely correct in their forecasts; in fact, they have always been wrong. However, on this occasion, they may just be right. Given that GDP in money terms next year is likely to be around £1,300,000 million, will my noble friend accept that, even if there is a modest breach, it would not be essential or appropriate to increase taxation or reduce public expenditure?

§ Lord McIntosh of Haringey
My Lords, I think that the noble Lord is referring to the most recent forecasts of the Institute of Fiscal Studies and the National Institute of Economic and Social Research. If he is, I am happy to include them among distinguished economists. He is right to say that the record of independent forecasters has not been all that good and certainly has not been better than the Treasury's record. In recent years, the Treasury's forecast differences for net borrowing have tended to be smaller than those of the OECD, the IMF and the European Commission. In so far as those figures for net borrowing are the difference between two very large numbers, there is clearly scope for adjustment at the margin. Certainly I agree that it would not be right to jump into drastic action as the result of very minor changes. That was shown to be the case in 2003.

§ Baroness Noakes
My Lords, we agree that the Chancellor will not breach the golden rule, because we believe that he will raise taxes to ensure that he stays within it. The only question is: what taxes and when? Will the Minister say what and when?

§ Lord McIntosh of Haringey
My Lords, the question arises from a premise that is itself false.

§ Lord Dykes
My Lords, does the Minister agree that—despite the much heavier investment by the Chancellor in the public sector in recent times—it is unfortunate that we still have the lowest investment ratio of the leading core countries in the European Union, both in the private and public sectors? What steps do the Government intend to take to rectify those problems?

§ Lord McIntosh of Haringey
My Lords, investment by itself is not an unmitigated good or bad. There are good investments and bad investments. We think that the investment programme that we have adopted—and that has been necessary to remedy the underinvestment by the government whom the noble Lord at the time supported—is necessary and well calculated to achieve its results.

§ Lord Newby
My Lords, does the Minister accept that there are a significant number of controversies 7 about the assumptions that underlie the budget balance on which the golden rule exists? An example in the past fortnight is the Government's estimates of corporation tax take in the years ahead; another is Martin Weale's comments today on the very basis on which the golden rule is calculated. Does the Minister agree that the best way to deal with those controversies is to give the NAO the power to have an independent audit of the assumptions that underlie the Treasury's calculations? That would put to rest some of our debates.

§ Lord McIntosh of Haringey
My Lords, the last time that the noble Lord asked me that question—it was fairly recently—I replied that the basis of calculation of the golden rule had been confirmed by the Treasury Committee, which is not particularly known for slavish adherence to Treasury terminology. I hold to that answer.

§ Lord Peston
My Lords, bearing in mind how very difficult it is to forecast GDP, and therefore how very difficult it is to forecast tax revenues—outturns when it comes to public expenditure are again rather tricky, even when you are trying to control them—it must be at least theoretically possible that the golden rule could be broken. However, I am not one of the distinguished economists and I do not expect it to be broken, which shows my lack of distinction. Therefore, there must at least be something resembling a contingency plan in the Treasury because, in my experience, the Treasury is on the whole very sensible and would consider all sorts of scenarios, including what to do if things do not go quite the right way. Should the added answer to the Question be that at least something called a contingency plan exists?

§ Lord McIntosh of Haringey
My Lords, my noble friend Lord Peston does not need to fish for compliments. I would have called him a distinguished economist whether or not he gave me the opportunity. Of course he is right to say that the Treasury has contingency plans for a wide range of possibilities and probabilities.