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Economy: OECD Report

Volume 702: debated on Thursday 26 June 2008

asked Her Majesty’s Government:

What is their reaction to the Organisation for Economic Co-operation and Development’s assessment of Britain’s economic prospects in its six-monthly report published at the beginning of June.

My Lords, the Government publish two economic and public finance forecasts a year: one in the Budget and one in the Pre-Budget Report. The Government last published their forecast on 12 March 2008. They will publish updated forecasts in the Pre-Budget Report as usual.

My Lords, is the Minister aware that not only the OECD but also the CBI anticipate that over this year and next, which will see the slowest economic growth for 17 years, unemployment will increase by no less than 200,000 and possibly more? Do the Government have any plans to cushion against this possible calamitous increase in unemployment, or will they, like every other Labour Government since the war, leave office with more people unemployed than when they came in?

My Lords, of course the Government are concerned that the world economic downturn has affected the British economy and will lead to a marginal increase in unemployment. The noble Lord is shocked at an increase in 200,000 unemployed, yet he was in a Government under whom there were 3 million unemployed.

My Lords, given that the rest of the country is having to tighten its belt because of the failures of the Government’s economic policy, what plans do the Government have to tighten theirs?

My Lords, Ministers are tightening their belts through a freeze on their pay, as the noble Lord will know. That is one action by the Government. The second and more general action is to have regard to the public finances against a background where we want to sustain the strength of the economy in difficult times. We are aware that there are risks of a reduction in growth and a marginal increase in unemployment. However, the Government will pursue their basic strategy of following their golden rule of making sure that there is sustainable investment and, in these most difficult of times, ensuring that the economy will still grow, although more slowly than in the recent past.

My Lords, the Minister has just mentioned the fiscal rules. Does he agree or disagree with the comment made by the OECD earlier this month that the Government deficit seems likely to be significantly more than 3 per cent of GDP, putting the fiscal rules at risk? Does he further agree with the research produced by my noble friend Lord Oakeshott showing that, as is only just coming to light, there is likely to be a shortfall in stamp duty in this fiscal year of at least £5 billion?

My Lords, when we address ourselves to our next forecast, we will look at the latest figures, as the noble Lord identified. We take seriously the OECD forecasts, but they are forecasts in the same way as the Government’s are. They send warning signals of the pressures that the British economy and public finances are under. However, appropriate adjustments will be made.

My Lords, do the Government have a view on the investment of sovereign funds in the British economy? Today we have seen a big statement about a heavy investment from a sovereign fund in Barclays Bank. Do the Government think that this sort of thing is good or bad for our economy?

My Lords, we live in a global economy and we are concerned to see inward investment. Indeed, the increased level of inward investment is one of the features of which we are proud in our record over the past decade. The noble Baroness is right to draw attention to the fact that certain kinds of investment may raise particular problems, but it is not for the Government to put constraints on them. It is for the Government to adjust their strategy in the light of the likely returns in taxation from such investment; the decisions themselves are matters for the private sector.

My Lords, it is not just the OECD that has been critical of Her Majesty’s Government’s conduct of the economy; almost every respected international and national body that studies such matters has been equally critical, making unfavourable international comparisons. The Government have overshot their borrowing target in almost every year since they came into office. This year looks like being the worst yet, with the highest public sector deficit of any country in the industrialised world. Does the noble Lord not think that it is time for more candour and less complacency from the Government?

My Lords, the noble Lord should have regard to our record on public debt. The simple fact is that, because public debt is now at 5 per cent of GDP, down from 9 per cent when we came to office, we are in a position where we have to repay much less interest on that debt. If the noble Lord is quoting external sources, let me say to him that the International Monetary Fund has also commented on the British economy, stating in its Article IV consultation:

“For over a decade the United Kingdom has sustained low inflation and rapid economic growth—an exceptional achievement”.

And so it is.