My Lords, as set out in the 2006 Pre-Budget Report, national accounts data together with the Treasury’s trend assumptions implied a small negative output gap in the third quarter of 2006. The Pre-Budget Report forecast showed the economy returning to trend in early 2007 and latest data for the fourth quarter of 2006 are consistent with this forecast. The Treasury will update this assessment in the forthcoming Budget.
My Lords, I am grateful to my noble friend for that reply. Three weeks ago the Institute for Fiscal Studies published a green budget and concluded that the public finances are healthier now than they were in the year when the Chancellor took over from Kenneth Clarke. So there was quite a successful changeover. However, there is still a current annual deficit. The 2007 spending round is being prepared and a considerable slowdown in the amount of both current and capital spending is anticipated. Should not the reduction of the deficit be the important matter that the Government need to take into account now?
My Lords, it is certainly an important matter, but I think that my noble friend will recognise that we are heartened by the extent to which the trend reflects our recent forecast. Although we have still to make an update in the Budget, as I indicated, the Treasury is nevertheless confident that it has accurately defined its analysis of economic trends; and of course the Budget will set the framework for the next stage.
My Lords, the Institute for Fiscal Studies pointed out that of 22 leading OECD countries, 17 have improved their structural budget balances more than the UK. In fact, Standard and Poor’s went further to say that the UK slipped from 14th to 35th out of 41 European countries and was the worst performer of the AAA-rated countries. What are the Government’s plans for dealing with this serious situation?
My Lords, I do not think that we consider the situation serious, but it will be watched carefully, and the noble Lord will recognise that the Chancellor will take these dimensions into account as he prepares his Budget. But the noble Lord should give credit where credit is due. Not only has the United Kingdom economy in recent years performed exceptionally well against all international standards, but the Treasury’s forecasting perspective has been remarkably accurate. On that basis, we can look forward to the Budget with confidence.
My Lords, on that point, will the Minister pass on to Gordon Brown our congratulations on inventing a truly amazing game? You do not know where it started or where it is going to finish—the only thing you are sure about is that he knows he is always winning. When are we going to get an independent referee to tell us when the cycle ends?
My Lords, I confirm to the House that the Chancellor is always winning—certainly. The noble Lord knows that the judgment on the economic cycle is complex, but he will also recognise that there are fixed points in that analysis with regard to trend. The reason for the somewhat jocular fashion in which I responded to the noble Lord, Lord Skelmersdale, is that we are nearing the point when the trend has been established and we can therefore go on to the next stage.
I am sorry, my Lords; I shall not compete with my colleague. Is it not true that the Government’s economic record of low inflation and high employment constitutes a 40-year record? In my recollection that has never been achieved by anyone on the opposition Benches for 100 years or more.
My Lords, I am coming to the question, and you probably won’t like it. Does my noble friend agree that the Government should be congratulated on that record, and that the Tories should be challenged to produce anyone who could achieve half as much?
My Lords, I ought to take the Minister back to the economic cycle. Does he agree that the main problem is that the Chancellor has changed its beginning and end so many times that the golden rule, which depends on the length of the economic cycle, has lost all credibility? Can the Minister name one respectable economic commentator who thinks that we should now place reliance on the golden rule?
My Lords, confidence in the golden rule is based on the successful operation of public investment in recent years and the successful conduct of the economy. The noble Baroness indicates that she never knows when these things start or end. However, I say to her with the greatest confidence that we are near the end, so she will be able to define the terms.