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Growth Forecasts

Volume 404: debated on Thursday 8 May 2003

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What methodology he used in drawing up the growth forecasts in the 2003 Budget. [111889]

The forecasts for the UK economy are constructed using the Treasury's model of the macro-economy as a framework within which to apply forecasters' judgments, and to ensure consistency.

At the time of the 2002 Budget, the Chancellor's forecast for UK growth was way ahead of independent forecasts. The independent forecasters were right, and the Chancellor was proved wrong. At the time of last autumn's pre-Budget report, the Chancellor's forecasts were again more optimistic than those of independent forecasters. They were right, and the Chancellor was proved wrong. In this year's Budget, the Chancellor is again completely out of step with independent experts. How can anyone have confidence in his forecasting ability, or is he simply hoping that it will be third time lucky this time?

I am afraid that it is the hon. Gentleman who is wrong. The heightened uncertainty in the world economy has resulted in forecasts for almost all the major economies being downgraded. Since the pre-Budget report in November last year, almost 90 per cent. of independent forecasters have revised down their forecasts. At Budget time, the Chancellor's forecasts for the current year were in line with those of three quarters of independent forecasters, who expected gross domestic product growth to be within or above the Budget range. Finally, of course, at each and every point the British economy, unlike the economies of some of our competitors, has continued to grow.

Paragraph 1, annexe a, of the Budget report makes it clear that long-term economic growth depends on long-term fiscal sustainability, which cannot be achieved if we switch financial burdens to future generations. How does my hon. Friend the Minister set that against the growing and damaging impact of the private finance initiative, which does just that—transfer financial responsibilities to future generations, with a damaging effect on growth?

I do not accept my hon. Friend's contention. The Government, and the Chancellor in his Budget statement, are able to be so confident about future increases in investment in public spending because of the tough decisions taken earlier on tax and spending. They included reducing debt as a share of GDP to the lowest of any country in the G7, and they mean that, despite the challenges of the world economy, the Government can meet their public spending commitments and tough fiscal rules. Also, the Government can be sure that the current Budget will be in surplus over the cycle.

Will the Minister explain why there are no specific growth targets for the UK's constituent nations? Is the reason that no target has been set for Scotland that Scotland has once again experienced chronically low economic growth, compared to the UK as a whole?

The reason is clear. We are the United Kingdom; we do not devolve macro-economic management. I remind the hon. Gentleman that during this Government's period in office, 150,000 extra jobs have been created in the Scottish economy as a result of this Government's measures.

Does my hon. Friend agree that growth is something that does not just happen, that it depends on economic policies and that the Government can use the levers of macro-economic power to make sure that it takes place? I hope that my right hon. Friend the Chancellor and hon. Friends will do that. Does my hon. Friend also agree that giving up those levers of power by joining the euro would not be sensible?

The general contention laid out by my hon. Friend is absolutely right. Of course we are in the present situation not by chance, but as a result of deliberate policy choices by the Government. That is why, 10 years ago, inflation was at 10 per cent. and is now one of the lowest levels in the EU, and why it has been consistently low. That is why, 10 years ago, interest rates were in double figures for four years in a row and are now the lowest since 1955. That is why 1.5 million new jobs have been created in the British economy since 1997.

Is it not astonishing that the Chancellor once again refuses to answer questions on his forecasts? At the time of his Budget, the Chancellor blamed his downgraded forecast on world growth and world trade. Yet his forecast for G7 gross domestic product growth in the 2003 Budget was identical to his forecast in the 2002 Budget. His forecast for growth in world trade in the 2003 Budget was actually higher than in the 2002 Budget. Does the Economic Secretary agree that it is absurd for the Chancellor to continue to cling to such ridiculous excuses that lack all vestige of credibility?

What is absurd is for the shadow Chancellor to try to pick holes in the forecasting record of the Treasury. Since 1997, the Treasury's forecasts have been better than the independent consensus. For every year-ahead projection since 1997, we have had a smaller or identical size of error than the average of independent forecasters. The right hon. and learned Gentleman might like to consult his colleagues on the Treasury Select Committee, who will have heard my right hon. Friend the Chancellor dealing with these questions in detail. They will also have heard the views of independent experts called by the Committee, such as Peter Spencer from the university of York, who said:

"There is no doubt the Treasury has a good forecasting record."

The Economic Secretary seems to have forgotten that the last time the Chancellor got his forecasts wrong—four or five months ago, in the pre-Budget report—it took him 24 hours to abandon his lame excuses and accept responsibility. This time, helped by the co-incidental timing of the fall of Baghdad, he has not abandoned his excuses at all. Will the Economic Secretary finally and belatedly do so on behalf of the Chancellor, accept responsibility and apologise to the British people for misleading them twice in a row?

I will do no such thing. I explained earlier that with the sharp economic downturn across the world in 2001, compounded by the added uncertainty of last year, independent forecasters across the board have been downgrading their forecasts in line with the Chancellor and the Treasury.