That the Bill be read a second time.
My Lords, I am pleased to open the debate on the Fiscal Responsibility Bill. I intend to provide a general overview of the key provisions of this important Bill and the background to it.
As my right honourable friend the Chancellor explained in the other place, the Government have set out consolidation plans to halve the deficit over a four-year period and put debt on a downward path. The Fiscal Responsibility Bill enshrines these targets in law, ensuring that the deficit is reduced at an appropriate and sensible pace that allows us to protect the economy and maintain key public services.
Whatever the economic circumstances, Governments need rules and objectives for their fiscal policy. As part of the Government’s reforms to macroeconomic and fiscal policy in 1997, we established a new fiscal framework with two clear fiscal objectives, which have been maintained since. The first is over the medium term to ensure that public finances are sound and that spending and taxation should impact fairly within and between generations. The second is over the short term to support monetary policy to help smooth the path of the economy. The objectives that we set out then remain today.
Between 1997 and 2007, the Government operated according to two fiscal rules, designed to deliver the following objectives: to balance the budget, excluding public investment, over the economic cycle; and to keep government debt at a prudent level. Those two rules were appropriate for the challenges that we faced at the time. Over the 10-year economic cycle, we balanced the budget and significantly increased investment in public services.
Those were sound rules for the time, but we are now operating in a completely different environment, and economic policy here and in other countries has adapted. Just about every country has been hit by a severe financial crisis, resulting in the worst global economic recession for decades. Borrowing and debt have risen in most countries, ours included. The recession has had a profound impact on the public finances, here and in most countries. This has resulted in a significant increase in government borrowing and public sector debt.
As my right honourable friend the Chancellor set out in the other place, we have had to be flexible in our response to these changing global circumstances. The Government had a duty to support the economy when the economy was weakened. The support provided has helped to limit the severity of the downturn and its impact on businesses and individuals.
There were costs to stepping in. However, not to allow borrowing and the deficit to rise to help people and businesses would have meant greater pain, more job losses and more damaged lives. As we look to the future and levels of uncertainty recede, the Government believe that it is appropriate to strengthen the fiscal framework. The UK is not alone in doing this. As Governments around the world work together in response to the downturn, many other countries are also looking at their respective fiscal frameworks. For example, Germany has introduced similar legislation, and the IMF has highlighted fiscal responsibility laws as a way to support fiscal adjustment by strengthening institutional arrangements.
The Fiscal Responsibility Bill should be viewed alongside other elements of the fiscal framework, in particular Section 155 of the Finance Act 1998 and the Code for Fiscal Stability, a revised draft of which was published on 19 January. The Finance Act 1998 sets out five key principles—transparency, stability, responsibility, fairness and efficiency—and the code explains how they will be applied to fiscal policy. The Fiscal Responsibility Bill effectively takes some matters which would otherwise be in the code and elevates them to primary legislation. The key example is that fiscal plans now and in the future must be set out in law. The code will be retained as part of the strengthening of the framework; in particular, it will provide important information about the nature of the Government’s fiscal plans.
The Fiscal Responsibility Bill sets out the Government’s first fiscal plan as a duty in primary legislation, which the Government are required to meet. It further requires that the Government set out future legislative fiscal plans for delivering sound public finances to be approved by the other place, and places a duty on the Government to meet those plans. This Bill gives Parliament a clear role in both setting and monitoring the Government’s medium-term fiscal plans. Fiscal plans must be approved before they become law, and this Bill gives a new level of scrutiny to the Government’s medium-term fiscal plans and means that Parliament should be able to hold the Government to account for them. The Bill represents a strengthening of the fiscal framework in response to new challenges. It will bind the Government and ensure that they deliver on the tough decisions to more than halve the deficit over four years and get debt falling.
Clause 1 imposes three duties on the Treasury: first, to ensure that government borrowing as a share of GDP falls in every year to 2015-16; secondly, to ensure that government borrowing is at least halved as a share of GDP over a four-year period to 2013-14; and, thirdly, to ensure that government debt as a share of GDP is falling by 2015-16. These three duties are in line with the Government’s fiscal judgment, which was set out at the time of the Pre-Budget Report. In 2010-11, government borrowing starts to fall and continues to do so each and every year thereafter. Borrowing will fall to 5.5 per cent of GDP by 2013-14, so that we more than halve from the 12.6 per cent of GDP reached this year. With further consolidation thereafter, debt as a share of GDP is projected to fall in 2015-16. This is the sharpest reduction in the budget deficit for any G7 country. There is no power in the Bill to amend the duties in Clause 1. They can be changed only through new primary legislation.
Clause 2 requires that the Government must continue to have a legislative fiscal plan after 2016. It also makes provision to give the Treasury the power to add, by order, further duties to the Government’s fiscal plan. Noble Lords will note that the Government published a draft order on the day of the Pre-Budget Report, requiring that borrowing, as a share of GDP, is reduced to 5.5 per cent or less by 2013-14. This goes further than halving the deficit in four years.
As we emerge from the global downturn we now need to ensure sound public finances.
I do not know whether the Minister noticed that the Chancellor of the Exchequer was quoted in the newspapers the day before yesterday as saying that Greece must reduce its deficit to 3 per cent within two to three years in accordance with what was agreed at ECOFIN. Why does what applies to Greece not apply to us?
I am afraid that I did not see the newspaper interview to which the noble Lord, Lord Lamont, refers and therefore cannot comment on it. Quite clearly, however, there is a commitment contained in this Bill and in our financial plans significantly to reduce the deficit. As I was saying, there can be no disputing the need to move towards ensuring sound public finances; this Government are clearly committed to achieving that outcome.
As growth resumes, and the economy is better placed to support tightening, fiscal policy will shift towards consolidation. Well timed and planned fiscal consolidation will support economic growth during the recovery. The Government’s judgment is that tightening fiscal policy too much in 2010-11 would present risks to the recovery and a deterioration of the fiscal position. The Government are cautiously confident about the prospects for the economy and believe that it will be able to support a more rapid tightening in 2011-12, and subsequently. Growth will help us to reduce our borrowing and debt.
Clause 3 sets out the reporting requirements on the Treasury, which must report through regular progress and compliance reports. Those will be produced alongside Budgets and Pre-Budget Reports. Reporting at those times allows the reports to be set in the right context. Progress reports must set out the progress which has been made towards compliance with the plans. The reputational costs of not being on track are, clearly, significant. Compliance reports must set out whether the plan has been met. That must be based on information available at the time. If plans have not been achieved, the Government must set out why they were not met. The reputational costs of not meeting the targets are, clearly, significant.
Noble Lords will have noted that the revised Code for Fiscal Stability, published on 19 January, sets out that the Treasury must also report on what it will do to remedy the situation. Compliance reports will be made at the Pre-Budget Report after the target end date. This assessment is necessarily retrospective, so that out-turn statistics can be used rather than forecasts. All reports must be laid before Parliament; that is the means by which the Government are held accountable to Parliament.
Clause 4 makes it clear that it is Parliament alone to which the Government are accountable for the approval of, progress towards and compliance with their fiscal plans. At present, Parliament has no direct say in medium-term fiscal policy—that is, spending and taxation brought together—beyond the year ahead. However, fiscal policy, by its nature, is largely accomplished through setting medium-term targets. The Bill requires the Government to set out their fiscal plans for a reasonable period ahead into the medium term, establishes statutory requirements to report on those plans and gives the House of Commons the right to approve or vote down those same plans.
I note the amendment before the House. Although I shall respond in detail in my closing speech, perhaps I may explain that the Bill gives Parliament a new role in both setting and monitoring the Government’s fiscal plans. It is right to give Parliament a formal, statutory role in holding the Government to account for their fiscal plans; that is what the Bill does. Furthermore, the Bill’s provisions mean that there will be more, not less, scrutiny of fiscal policy in the future. That is a significant evolution of the extent to which the Government are held to account for their medium-term fiscal policy. Parliament is the right body to hold the Government to account for their plans for tax, spending and borrowing.
Fiscal policy is, ultimately, a judgment that brings together all taxation and public spending decisions that have an impact on the public finances. That is a particularly difficult judgment in the present climate. It is for that reason that the Government believe giving Parliament a role in holding the Government to account is beneficial. The Government’s approach is to strengthen the existing fiscal framework and to enhance accountability to Parliament.
As my right honourable friend the Chancellor made clear in the other place, the Government expect to see growth in the economy this year, and that will pick up in 2011 and 2012. As growth accelerates, we must ensure that we have sound public finances. These are absolutely essential to economic stability, prosperity and the long-term health of the economy. An enhanced fiscal framework through this Bill will support this task and Parliament is being given a new role to hold the Government to account. I commend this Bill to the House. I beg to move.
Amendment to the Motion
As an amendment to the Motion that the Bill be now read a second time, at end to insert “but this House regrets that the Bill may pass into law without consideration of Clauses 2 to 6 in either House of Parliament, and affirms that the principle of full parliamentary scrutiny of proposed legislation in at least one House of Parliament is conducive to the proper conduct of constitutional government”.
My Lords, I shall start by dealing with the Bill—I thank the Minister for introducing it—and then shall move to my amendment, which raises rather different issues from those raised by the Bill itself.
I shall try very hard not to be unkind to the Minister today. I know that he is not responsible for this silly Bill. The Treasury is not even responsible for this silly Bill. It was cobbled together by the Prime Minister and his old ally, the Schools Secretary, just before the Labour conference. It was clear that the Government had squandered the legacy they inherited in 1997 and there was nothing positive to say about the economy. The golden rules had turned out to be fool’s gold. Boasts about leading the world out of recession were looking decidedly weak. So they dreamt up the wizard idea of passing a law that would pretend to achieve the fiscal responsibility which had been so absent from their time at the Treasury.
Back in 2002, Mr Balls co-wrote a book with a foreword from the Prime Minister. It was called—this is not a joke—Reforming Britain’s Economic and Financial Policy: Towards Greater Economic Stability. These policies rested on three pillars. The first pillar was the independent Monetary Policy Committee, and this is the only pillar which is still standing. The second pillar was the creation of the Financial Services Authority to “ensure financial stability”. The final pillar was a fiscal policy framework to deliver sound public finances through a code for fiscal stability, firm fiscal rules and better planned public expenditure. I promise that I have not made this up. As one commentator has observed, this book will now be sought only by historians with an interest in crumbling pillars. These were the men who fantasised that they had created a new way to run the economy. When that went belly up, they then invented a law which would make other people believe that they had succeeded rather than failed.
When Her Majesty the Queen delivered the gracious Speech at State Opening last November, the Government made Her Majesty say:
“Legislation will be brought forward to halve the deficit”.
If anyone else had delivered that line, it would have brought the house down. It is risible to think that legislation can deliver an economic outcome. That is the fundamental weakness of the Bill. It pretends that to legislate for duties or targets is to make them happen.
The noble Baroness’s colleague the noble Lord, Lord Lamont, referred to the 3 per cent target, to the Greek situation and, implicitly, I assume, to the now general support on the opposition Benches for the Maastricht criteria. If those sorts of things have been laid down, what is wrong with the things that we are laying down?
My Lords, I try never to talk about the stability and growth pact and I shall not do so today. I was explaining the fundamental weakness of the Bill—namely, that it pretends that to legislate for duties is to make them happen. It ranks alongside the Climate Change Act and the Child Poverty Bill in diverting attention from underlying failure by seeking to bind a later Government to deliver what this Government's own policies have failed to do.
We agree with the direction of travel of the duties set out in Clause 1; achieving a reduction in borrowing and net debt would be a step in the right direction. As we have debated on other occasions, however, our policies would have greater ambition in clearing up the economic morass in which we now find ourselves. However, we do not need an Act to make this a duty, we need government action. Words in this Bill are not a substitute for action. The PBR, as we debated last week in the context of the Maastricht Motion, conceals beneath its surface a need to reduce spending by anything up to 24 per cent in some departments. But the Comprehensive Spending Review is on hold and the Prime Minster refuses to talk about expenditure cuts.
Clause 2 reaches the height of absurdity because it requires the Treasury to tell the Treasury to do things to secure sound public finances. Why do we need a statute to do that? Will the Treasury no longer do its job unless the law tells it to? It is sheer, arrant nonsense.
Clause 3 requires the Treasury to report on progress, but what substance does it add? It effectively requires the Pre-Budget Report and the Budget Report to show borrowing and debt figures. Have we never seen borrowing and debt figures in those reports? Of course we have. Have those reports ever given an honest explanation of why the Treasury’s forecasts for borrowing and debt have been miles out? Of course they have not. Will this clause make any difference? I leave noble Lords to draw their own conclusion.
Clause 4 blows the whole Bill apart. We have these duties and reports, but there is absolutely no legal consequence for anybody or any organisation if they are missed. What on earth is the point of legislating if there are no consequences and the only outcome is reports which we already get?
As there is no commencement clause, the legislation will come into effect as soon as Royal Assent is received. The clever clogs in Number 10 Downing Street and the schools department will congratulate themselves that they have solved the financial problems of the country. But of course the Bill will make no difference at all. The most compelling bit of evidence for that is the impact assessment, which states:
“There are no monetisable benefits arising from the Bill”.
That, at least, is an honest statement, because the Bill will make not one jot of difference to the real world. Either the Government will get a grip of the public finances or they will not. We rather think that the current Government will not do so in a month of Sundays, and that we will have to wait until the other side of the election for a new Government who will have to act.
This is a Bill of such stupidity that it is an insult to Parliament to use its time to process it. But the bigger insult to Parliament comes from the process which the Government have used to force the Bill onto the statute book. The Bill has come to your Lordships’ House certified as a money Bill by the Speaker. We therefore cannot amend it. Sorely though we may be tempted, our House cannot challenge the Speaker’s certificate, and I do not do so. Once issued, the Speaker’s certificate is accepted without question, and this of course stifles consideration in your Lordships’ House. It is perhaps for another day, in the context of wider parliamentary reform, to look at whether this convention continues to serve the public interest.
The bigger problem with the Bill is that the Government, through the deliberate use of their majority in the other place, have used the procedures of the other place to ensure that the Bill was not properly considered. The other place has the exclusive right, which we fully respect, to take decisions on its own business. However, as my amendment to the Motion suggests, wider parliamentary considerations arise when the other place decides not to examine a Bill in detail and the Speaker’s certificate means that matters which will become the law of the land are not scrutinised by Parliament. What is Parliament for if not to scrutinise proposals tabled by the Executive? I submit, as my amendment to the Motion sets out, that it is part of the proper conduct of constitutional government for at least one House of Parliament to examine proposed legislation in detail before it becomes law. I do not believe that certification as a money Bill should alter that principle.
I remind the House what happened in this case. After the Bill’s Second Reading in the other place, it had its Committee stage on the Floor of the House. This enabled the Government to avoid the evidence phase that is now a feature of the Public Bill Committee procedure in the other place. It does not take a genius to work out that evidence sessions would have exposed the Bill as completely lacking in intellectual support or hard evidence.
The Government allowed only one day of consideration in Committee. The other place was able to consider amendments only to Clause 1: Clauses 2 to 6 were untouched. The debates on the amendments to Clause 1 revealed significant deficiencies. Clause 1 fails to mention the structural deficit; does not cope with a double-dip recession and lacks independent scrutiny such as we have proposed with an office of budget responsibility. Of course, the Government used their majority to make sure that these sensible amendments were defeated. The Government allowed no time for reflection, and no Report stage. The Bill went immediately to Third Reading and arrived here the next day. Why did the Government do that? It was one way to close down debate on the Bill. Put simply, the Government used their parliamentary muscle to squash dissent.
One other Bill has recently been treated in this way in the other place: the Personal Care at Home Bill. Fortunately, that Bill did not attract the Speaker’s certificate, and I am sure that it will be dealt with in your Lordships’ House in the way that it deserves. However, we cannot do anything to the Fiscal Responsibility Bill because it is a money Bill. It will go onto the statute book unamended soon after our proceedings today. The least that it deserves is to be amended, to have emptiness replaced with substance. The most that we can do is to hold it up for a couple of weeks.
We cannot amend the Bill, but we can amend the Motion approving its Second Reading. I hope that the House will agree that a Bill that has not been fully scrutinised in either House of Parliament offends against the proper conduct of constitutional government, and that we regret that the Bill will pass into law without full scrutiny. I beg to move.
The original Question was that this Bill be now read a second time, since when an amendment has been moved at the end to insert the words printed on the Order Paper. The Question is that this amendment be agreed to.
The noble Baroness, Lady Noakes, was extremely careful in the phrasing of her speech. However, her amendment deals with issues that are referred to in the Companion, and the House may be interested in paragraph 4.52, which concerns criticism of the House of Commons, when it comes to debate further.
My Lords, I strongly support the remarks made by my noble friend Lady Noakes. I will divide my own remarks into two parts, the first on the Bill and the second on fiscal responsibility. The only connection between the two is an inverse one: the appearance of this absurd Bill is nothing more than a pathetic political substitute for the much needed exercise of genuine fiscal responsibility.
I turn first to the Bill. I am all in favour of setting out medium-term fiscal projections and ambitions. It would be very odd if I were not, for these were an integral part of the medium-term financial strategy that my noble and learned friend Lord Howe, who I am glad to see in his place today, and I launched some 30 years ago in March 1980. The MTFS was a much more substantial affair than this wretched Bill. A declining path for public borrowing was only part of it. There was much else besides, including public expenditure projections over the ensuing five years, about which the present Government are conspicuously silent. It was also, unlike this Bill, economically literate, not least in its discussion of the effects of the economic cycle on public finances.
This ridiculous Bill, which is only marginally less absurd than if the Government had introduced a Bill to impose a statutory duty on themselves to provide good government, is touted as a means of improving accountability. This was also one of the objectives—but by no means the only one—of the medium-term financial strategy, but there are two important differences. First, the MTFS was introduced in the first year of a new Government, whereas this comes before us in the dying months of an old and discredited Government. Secondly, we chose not to dress up the accountability which published projections provide in a Bill in which the Government impose a statutory obligation on themselves, with no penalty of any kind for non-performance, as my noble friend Lady Noakes pointed out. That does nothing whatever to improve accountability but merely makes a mockery of the rule of law, which is quite a serious matter, as I think noble Lords on all sides of the House would accept.
Before I leave the past, perhaps I may be permitted to remind noble Lords of my own exercise of fiscal responsibility—“been there, done that”, as they say—conducted, I may add, without any legislative vehicle of this absurd kind. During my own six-plus years as Chancellor, public expenditure as a share of GDP declined by 8 per cent, and I am using figures which include no help from privatisation receipts. Incidentally, it should be noted that we called it by its correct name of “expenditure” rather than “investment”.
In no other six-year period within living memory, either before or since then, has a decline of this magnitude been seen, nor did any other country at that time achieve anything similar, which demonstrates that this was not a cyclical phenomenon. It was achieved by holding the growth of public spending in real terms down to little more than 0.5 per cent a year. As spending on several programmes, such as health and defence, rose by significantly more than that, it meant that elsewhere there had to be very considerable cuts. However, it was done, and the result was that the public finances went from deficit into surplus, and public sector net debt fell to less than 28 per cent of GDP, the lowest within living memory. It now stands at roughly twice that level and is rising fast. On the Government’s own projections, it will move to more than 70 per cent over the next two years. According to the latest report by the OECD, in all its 28 member countries, public sector borrowing as a percentage of GDP in the UK was exceeded last year only by Iceland and, by a whisker, Greece. This year, it reckons that UK public sector borrowing will be the highest in the entire OECD.
That brings us to the crisis we now face and the urgent need for real fiscal responsibility rather than this pathetic paper substitute. I address these closing remarks chiefly to the leadership of my own party, which I hope will find itself in office in some 12 weeks’ time, as I have long given up hope of any fiscal responsibility from this profligate and disastrous Government.
It is of the first importance not to be seduced by the Augustinian prayer, “Lord, give me chastity and continence, but not yet”—the mantra of the neo-Keynesians, to which the Minister implicitly cleaves. It is no accident that at no time since the war has fiscal retrenchment ever been embarked on too soon. The argument for delay is always seductive and invariably mistaken, sometimes disastrously so. Moreover, in the real world, there are inescapable time lags in the system, which mean that spending cuts announced immediately after the election will in any case take time to have their effect.
Although the world economic recovery is still somewhat anaemic—particularly in this country, sadly—it is important that the threat of a global banking meltdown, which is the very real danger, has been averted, as the markets have recognised, so there is no economic case for delay.
My Lords, the noble Lord, Lord Lawson, says that it is essential not to delay. How does that relate to the fact, as the distinguished commentator Sir Samuel Brittan pointed out the other day, that we have a huge output gap—to use the traditional phraseology—of productive potential? Unless the noble Lord thinks that we can magically reduce the output gap, is there not prima facie evidence that fiscal policy should not be tightened too soon? I am speaking in line with the article by Sir Samuel Brittan. Does the noble Lord not agree with that?
No, my Lords, I certainly do not agree with that and nor do the Government agree with what is implicit in the remarks of the noble Lord, Lord Lea. The Government say that the fiscal tightening should start in a year’s time—not now—and there will still be a substantial gap then; the 10 per cent gap will not suddenly have disappeared by then. I am afraid that the noble Lord is mistaken.
The idea that much needed fiscal retrenchment might be inflationary should, in any case, have finally been put to rest by the experience of 1981, when no fewer than 364 economists, some of them quite distinguished, wrote to the Times to warn that fiscal tightening in the depth of the then recession would condemn our economy to a self-perpetuating downward spiral. Of course, nothing of the sort occurred. However, there was a substantial tightening, rightly introduced by my noble and learned friend Lord Howe in his 1981 Budget. So far from activities spiralling downwards, shortly afterwards the economy began a prolonged period of expansion.
Today, as current events in parts of the eurozone remind us, there is above all the crucial dimension of confidence. That is even more important in the UK. If, in our present alarming and unprecedented fiscal predicament, a new Government are not seen to grasp the nettle of fiscal responsibility from the moment they take office, confidence both at home and overseas will be shattered, with potentially disastrous consequences. This is not a matter of spelling out an itemised list of savings now, any more than we did before we took office in 1979. If they have not already done their homework, which I trust they have, my friends in the other place who will take the responsibility after the election may be assured that Treasury officials will have done theirs, and will present them with a list of options to choose from. No, it is a matter of iron resolve and the courage to be hugely unpopular in the short term.
This Government have lost all credibility—that most vital of assets for any Government—which this farce of a Bill will do nothing whatever to restore. Sadly, once again, in the eyes of the world we in this country have become what we were in the 1970s, a second-rate nation. The task of rescuing our country from this fate now has to be embarked on all over again. The success or failure of the next Government in discharging that task will be determined to a very large extent by the decisions that they take, not merely in their first 100 days but in their first 50 days.
My Lords, it is always a privilege and a pleasure to follow the noble Lord, Lord Lawson. He has done part of my work because I, too, was going to begin by reminding your Lordships how difficult fiscal responsibility has been in our economy. The medium-term fiscal financial strategy that he mentioned was indeed a pioneering act which lasted quite well for a while. While the 364 economists are always mentioned, it is my great regret that I did not add my name to their letter as I was out of the country, but I would have had I been here.
The 1980s recession was longer than any other we have had, and the current recession is only about half its length. While the economy may have started to recover after the 1981 Budget, it took a long time to attain the pre-1980 level of output. The rate of inflation, which was increased by the decision to double VAT—no, there was a promise not to double so it was raised from 8 to 15 per cent, which I agree was not quite doubling by a very truthful Government—took ages to come down. It was quite a severe recession, but a fiscal responsibility was achieved. As the noble Lord, Lord Lawson, reminded us, he achieved a considerable reduction in debt.
Then it all went awry. We will all remember how the 1992 election was bought by spending lots and lots of money. There was a recession and I do not know why it was caused. We were not even in power. Again, there was high inflation, but perhaps the gnomes of Zurich were doing something. That inflation and the big rise in the debt/GDP ratio had to be tackled by the noble Lord, Lord Lamont, who is in his place. I paid tribute to him the other day and I do so again because the reduction of that deficit was achieved with great difficulty.
In those days, we had to resort to entry into the ERM as an external straitjacket to force a British Chancellor of the Exchequer to abide by fiscal responsibility. I remember—I was there and I took part in those debates. Indeed, we thought that the ERM would be the perfect straitjacket. Alas, that too broke down and we had a bloodbath on an exchange rate that George Soros made lots of money out of. Then we steadily had to work hard again in the early 1990s until the Labour Government came to power. My right honourable friend, the then Chancellor and now the Prime Minister, achieved the biggest repayment of debt of any other Government in the first four years after coming to power.
Fiscal responsibility has been a cyclical thing in this country—it comes and goes. Then for a while we have to tighten our belts, behave ourselves and abide by what the Government say. But then every Government have been tempted by the good times—when they come, the system gets relaxed and we can start misbehaving again. Whatever the Opposition may say, the course of the economy after 1997 was thanks to the Finance Act 1998 and the strategy that it laid down.
It is not true to say that we have only recently thought of fiscal responsibility. In 1998, a strategy was laid down and we achieved an unprecedented continuous expansion of output for something like 40 to 45 quarters. We are in trouble again, because there has been a worldwide recession and financial breakdown. I will not deny that we entered the recession with a structural deficit; I have said so myself. The problem is that when this Bill comes before us the Opposition take the view that I attribute to Milton Friedman about trade unions; that they are ineffective and dangerous. The idea is that this is a useless and dangerous Bill. I do not think it is either of those things. The Bill puts the Pre-Budget Report into some kind of legislative framework. We had a discussion on the Pre-Budget Report not that long ago. In those projections, we were down by the terminal year of the convergence report to 3.2 per cent of GDP for our deficit, and the noble Baroness was objecting that we had not really achieved the Maastricht criterion of below 3 per cent. That is not very relevant at present. The Bill lays down what has been promised in the Pre-Budget Report, and there is no harm in laying it down.
There are two ways of thinking about it. Many of my strongly Keynesian friends will say that this is terrible; no Government should ever give promises like this about what to do about debt and spending, because you never know what might happen next. We could have a double dip recession or another crisis. Maybe in 2011-12, whichever Government are in power will find themselves bound by this Act—and what will happen? As the Minister explained, if whichever Government are in power then find that they cannot abide by this because economic circumstances have changed, they will have to bring forward primary legislation. That is the strictest requirement that the Bill imposes. I do not see anything wrong with that. As has happened in previous Administrations, both Tory and Labour, Governments abandon targets and change definitions; now you at least will have to have primary legislation that will be debated by Parliament. That is a good thing. That is a bit of discipline that the Bill imposes and which I welcome.
Let me say something about the amendment tabled by the noble Baroness, Lady Noakes. She has said that it is a pity that there has not been adequate discussion of the Bill. As the Lord Speaker has reminded us, we cannot say very much about what another place does. That is its business. But in the speech made by the noble Baroness, Lady Noakes, she did not say that there was much content to Clauses 2, 3 or 4, and that Clauses 5 and 6 are clearly formal. I think she is objecting to the fact that another place did not discuss the clauses which she thinks are not worth very much. Indeed, another place concentrated on one important clause and we have its reactions.
Let us resolve that there are no perfectly virtuous people and no sinners in this respect. All parties have this problem. If we can again decide that we need some sort of fiscal structure, discipline or framework to abide by, and if the Bill is on the statute book, whichever Government are in power will have to remember to bring in new primary legislation if they want to change the rules. That should be welcome. That is why I welcome the Bill.
My Lords, I hope to make a short speech, because the Bill deserves short shrift. I add my voice to the many criticisms of the Bill and support all that my noble friend Lady Noakes on the Front Bench and my noble friend Lord Lawson, with whom I had the privilege to serve as Chief Secretary in the mid-80s, have said about it.
There are so many criticisms of and clear flaws in the Bill. Most obviously, anyone can set targets, but without plans to reach them and without sanctions for breaching or failing to achieve them, the exercise, and hence the Bill, is meaningless. The Explanatory Notes state:
“The purpose of the Bill is to ensure that there is always in place a duty on the Treasury to secure sound public finances for the United Kingdom”.
We do not need a Bill to do that. I had always thought that every Chancellor and Chief Secretary had that high on their list of responsibilities and priorities. Is the Minister really saying that, up to now, no Chancellor, no Chief Secretary and no Treasury has ever regarded that as one of their duties? The more I read the Bill, the more it seems to me that it adds nothing to what any good Chancellor and any proper Treasury would do anyway. It adds nothing, especially as it has let-out clauses in its later part, which were not even looked at in the other place.
As for accountability to Parliament, surely that has always been the case. I challenge the Minister to tell us that, hitherto, the Government have regarded themselves as not being accountable to Parliament in numerous ways and through numerous mechanisms. The Bill adds nothing in that respect either. The way in which the Government railroaded the Bill through the House of Commons does not augur well for any parliamentary scrutiny arising from the Bill. It is a waste of parliamentary time.
The targets are worth little if there are so many let-outs and no penalties. They are no substitute for real, costed plans and real action. They are based on the fantasy that wishing makes it so. This morning, the Minister talked about Clause 1 with a straight face when he described the targets as though, thanks to the Bill, they would just happen. As Richard Lambert, director-general of the CBI, said,
“it’s a bit like me saying I’m going to join the gym and that means I’m fit already”.
What does the Bill do that a Budget and the public expenditure review are not doing or should be doing already? It is meaningless. After the election, no one will pay any attention to the Bill; it is real decisions and real measures that will count.
Indeed, no one is paying any attention to the Bill now. Is it an attempt to convince markets, domestic and international? If so, it has failed, as is demonstrated by the current turmoil in international currency and bond markets and by the fact that it has been totally ignored by all the bankers, economists, financiers, speculators and commentators. Has anyone said, “It’s all right, we have the Fiscal Responsibility Bill, and that will see us through”? No one has said that.
In conclusion, I made two comparisons. The first is with the fiscal rules, which were drawn up on the back of an envelope and trumpeted as part of fiscal discipline. In the period of prudence, until about 2000, when the then Chancellor was observing and constantly talking about prudence, the fiscal rules were observed. Increasingly, as public expenditure increased, the rules had to be stretched and fiddled—changing the date line and so on. They were increasingly broken and discredited and, finally, ignored, dropped and forgotten. This Government ended up with a massive fiscal deficit, leaving this country one of the least prepared to face the global credit crunch. The Bill, with all its let-outs, including Clause 4(3), could easily go the same way as the fiscal rules if this Government had to implement it.
The second comparison is with other recent actions dreamt up by the Prime Minister. After 13 years of opposing it, the Prime Minister has proposed a referendum on an alternative vote system—after the election, of course—in a blatant bribe to the Liberal Democrats. The Personal Care at Home Bill, described by one of the presenters on the “Today” programme this morning as a back-of-the-envelope piece of electioneering, has been devastatingly holed under the water by 79 local authorities in a letter to the Times today. In my view, it was shredded at Second Reading by the noble Lords, Lord Warner and Lord Lipsey, and, in particular, by my noble friend Lord Howe, speaking from our Front Bench. My local newspaper, the Eastern Daily Press, said that, given the realities of the country’s finances, it could seem a promise plucked straight from cloud-cuckoo-land. This Bill follows the same process. The Prime Minister’s frenetic activity and headline electioneering are no substitute for thoughtful policy and practical actions. The Bill is in the same vein, giving the pretence, rather than the practical reality, of tough action on the fiscal deficit.
In my 36 years in Parliament, I cannot recall an example of an affront to Parliament and an abuse of legislative process such as this Bill. I have a great deal of respect for the Minister who introduced the Bill. After a shaky start—I make no criticism of that, because it is quite a translation to come from the City to Parliament—he has demonstrated in all the things that he has been responsible for that his experience, expertise and authority count. Today, however, he had to have a straight face as he read out the nonsense that was put in front of him. If I were a Treasury Minister now, I would vigorously oppose the Bill within the Treasury and, if I had to put it forward, I would have my head down and my hands over my ears; I would read as rapidly as possible through the stuff that I was supposed to read out and hope that no one would follow me afterwards. There was something of that sort from the Minister today. He gabbled through. I suspect that he knows that he was talking gobbledegook without substance. In short, we should not be wasting our time with a Bill such as this.
My Lords, as this is a money Bill, this House cannot amend it, but I shall discuss the motives and principles underlying it. My speech will not give satisfaction to the two opposing parties, but I hope that, for that reason, it may gain in coherence. As the noble Lord said, we shall see.
The Government are in a bind. The markets are clamouring for retrenchment. On the other hand, the Government know that retrenchment now would be fatal for recovery. This rather feeble measure is the result. It reminds me of nothing so much as the optimistic promises that I used to make to my bank manager when he called me to ask what I intended to do about my overdraft. This, of course, was in the days when I knew who my bank manager was. He was called Mr Gay and was a delightful man.
Deficit reduction will start in 2011 and proceed steadily year by year until 2015. By 2014, at least half of this year’s deficit will have gone. By 2016, the national debt as a proportion of GDP will be lower than in 2015 and, after that, we are promised an era of sound public finances. It would be interesting to know the economic analysis underlying this rather random collection of figures and dates, because I have not found it. However, one thing is clear: as for St Augustine, virtue is for the future.
An interesting feature of the Bill is that these promises are set forth as duties. The Government seek to bind themselves to what they promise to perform, but these are not hoops of steel but hoops of elastic. As has been pointed out by other noble Lords, there are no sanctions for non-fulfilment of the duties; there is simply an extra duty to report to Parliament on progress towards and compliance with the other duties, or non-progress and non-compliance, as the case may be. The programme seems rule-bound, but it is at the discretion of the Treasury to be bound by the rules that it lays down. This ample escape clause is no doubt wise, given the fact that neither the Government nor anyone else can know whether they will be in a position to fulfil their duties. That depends entirely on what happens to the economy, and no one knows for how long it will have to be on a life-support system.
This being so, I would rather there had been no Bill at all than one that makes a mockery of the concept of duty. However, given that it may have been politically necessary to have some statement of future intentions with a law-like look about it, I would have liked to have seen an independent fiscal policy committee set up as part of the machinery of the Bill and charged with the duty of reporting to Parliament on the validity of any reasons that the Government might give for non-fulfilment of their statutory duties as laid down in Clause 1. Such a committee, I suggest, should become a permanent part of our fiscal system. Talk about primary legislation and strengthened accountability to Parliament seems to me to be largely eyewash. This Government know that any Government with a reliable majority can always get their money Bills through Parliament.
I want to make a few more general observations. I notice that there is no duty laid on the Treasury to restore the much vaunted fiscal rules that were suspended in 2008. This interim period affords us an opportunity to rethink the content of these rules. The rules state that, over the cycle, the Government should borrow only to invest and that investment should not add to the national debt. In fact, these rules were being broken before the present downturn. Everyone knows that. I am surprised that the Minister said otherwise when he introduced the debate. Part of the doubts about the solvency of government finances today is due to previous cheating on the rules.
By 2007, after five years of GDP growth of 2.7 per cent per annum on average, which was widely accepted as the trend rate, or even above trend, there was no excuse for a deficit in 2007-08 of 2.6 per cent of GDP. Over the period, the Budget should have been balanced on the Chancellor’s rules or even been in slight surplus. In fact, there have been only three years of surpluses—1999, 2000 and 2001—over 17 years of positive growth.
The so-called rules lent themselves to manipulation for two reasons. First, no one really knows when cycles start or how regular they are. One can only know for sure in retrospect. Secondly, and possibly more important, public sector investment is an inherently vague term, as the noble Lord, Lord Lawson, pointed out with his usual clarity in his book View from No. 11. His words are worth repeating:
“The current/capital distinction does not have the same meaning in the public as in the private sector. School buildings, for example—however desirable and productive in the larger sense—do not produce a cash return which will service debt interest. Nor are outlays on them inherently more productive than, say, expenditure on better teachers, which counts as current”.
Therefore, I have considerable sympathy with his conclusion that,
“those who seek to assimilate the system of public expenditure control to the conventions and methods used in the private sector always remind me of small children playing at shops. It has little relationship to the real thing”.
One could argue that we need fiscal rules, and I would agree, but if we are to have them I would prefer the following rule: that the Government should set taxes to balance the Budget when the economy is growing to trend, as measured by a moving average of outcomes over the previous five years, with a surplus accruing when the economy is growing above trend and a deficit when it is growing below. Of course, if a black swan, such as the meltdown of 2008, happens, all bets are off. The rules have to be suspended. There always have to be escape clauses in any financial rules, but that does not seem to be a sufficient reason for not having any.
My final point concerns a matter of economic theory. John Redwood remarked in the other place that,
“we cannot solve a crisis of over-borrowing by borrowing too much in the state sector”.—[Official Report, Commons, 5/1/10; col. 97.].
That is definitely wrong. If every bank had started to deleverage simultaneously without any increase in public borrowing, the collapse in aggregate spending would have made the great depression look like a vicar’s tea party. Keynes pointed this out years ago in his famous paradox of thrift. The Government are a qualitatively different borrower from a private sector borrower; to treat the private and public borrower as equivalent is like children playing at shops, to use the words of the noble Lord, Lord Lawson. Mr Redwood and most of his colleagues should go back to school.
One may argue about how big the output gap was and is and about whether the stimulus policies have been enough, too much, or well or ill designed, but I am absolutely sure that some stimulus was and remains necessary. The Government are therefore absolutely right to resist the austere spirits who are calling for draconian spending cuts and tax increases now. If this Bill, full of mirrors, is the price that needs to be paid for pretending to listen to them, I am content to support it.
My Lords, fiscal responsibility should be the first duty of any Government in macroeconomic matters. The entire credibility of our economy is founded on that, as is our ability to engage with other partners in a global world. No one can object to the principle of fiscal responsibility. Indeed, even the current Prime Minister, on taking office as Chancellor of the Exchequer in 1997, promised us that he would,
“introduce tough rules for government borrowing … meeting the golden rule for borrowing. Over the economic cycle, the government will only borrow to finance public investment and not to fund public consumption … alongside this golden rule commitment, we will keep the ratio of government debt to GDP stable on average over the economic cycle and at a prudent and sensible level”.
Those were fine words, but I remain to be convinced that the Government have lived up to their own aspirations. We need to recognise that we as a country face a major problem of credibility, and that we will achieve credibility only by adopting a serious approach and by taking difficult decisions. Anyone who takes the complex decisions that will need to be taken in the highly charged global economic environment of the coming months will need to make fiscal responsibility a top priority.
Our current fiscal situation is truly dire, and we should all be very worried about the problems. Government borrowing over the next five years is projected to exceed the entire debt inherited from all previous Governments put together, and our national debt is set to double to more than £1.5 trillion. Debt as a proportion of gross domestic product is estimated to be around 43 per cent, but some project that this might increase to 80 per cent by 2013. Our credibility is at stake and we need to act.
However, I am not sure that the way out of this crisis is for Parliament to enact legislation that requires the Government to do what they should be doing anyway. The Prime Minister’s ambition to halve the deficit within four years, as he announced at his party’s conference last year, will still leave it at 7 per cent—the same ratio as when this country went to the International Monetary Fund in 1976. Even in those circumstances, we need to recognise that our markets are not going to be as attractive as they could be, which should alarm all of us who are interested in the well-being of our economy.
It is disturbing that our international credit rating could be put in jeopardy through the fiscal expansionism over which this Government have presided over the past 12 years. The consequence of that change in our credit-rating status may result in an increase in interest rates, which could only inflict further harm to our economy and prolong the suffering that we as a nation endure on the road to recovery from the recent recession.
I return to my original point; most economic actors and political commentators recognise the crisis that we face, but can another piece of legislation truly be the answer? The problems are more fundamental, and it is not clear what this legislation will deliver in practice beyond grand aspirations and worthy ambitions. What will this legislation enshrine that would prevent any Government breaking the rules, even after the legislation is passed? We need to have a clear and coherent answer, otherwise we risk the charge that this Bill does nothing but articulate fine aspirations.
To be fair to the Government, a recognised problem lies in the definition of the timings of the economic cycle in applying the golden rules. It does not help that the Government have changed the definition of the economic cycle on several occasions to suit the communications agenda and political conveniences of the day.
These changes have damaged our credibility internationally, as the Institute for Fiscal Studies has observed. It said:
“The perception that the Chancellor has moved the goal posts and has delayed the tax raising measures and cuts in spending plans that we and other independent commentators had been saying would be necessary until after the 2005 election undermines the credibility of the fiscal framework”.
If this Bill can seek to restore that credibility, that can only be a positive step forward, but I am concerned that it will do little more than create yet another government target. In view of the country’s present financial situation, parliamentary time could be used more productively by putting together a credible plan to reduce the increasing deficit and restoring our credibility in international markets. I hope that I am wrong, but I do not believe that the Bill will make a tangible difference to that course.
I do not underestimate the scale of the task that will face whoever happens to sit on the government Front Bench after the general election, but I commend the approach that my party has agreed to adopt. The economic model that has sustained the Government’s fiscal expansion is damaged, having been constructed on the basis of a public spending boom, a confused regulatory mix in the financial services sector and excessive consumer borrowing that fed a housing-price bubble. We need to undertake a fresh analysis of where future economic growth will come from, and construct a firmer foundation for future economic stability.
I welcome the comments from my Front Bench over recent weeks that have painted an ever clearer picture of how we would build economic growth on a competitive tax system and new infrastructure. We should look to the growing economies of the east not to supply goods and services for our consumption and use, but to be partners in competition that will want to purchase what this country can offer and provide. We in this country have a great deal to offer the world economy, and restoring our position should be our prime focus.
The eight benchmarks on which the Conservative Party’s policies can be judged are measured and sensible. We must act with urgency to protect our credit rating, without which we will face an even bigger task to recover from the unfavourable situation in which we find ourselves. We need a more balanced economy, which will involve increasing the role of the private sector in every region of the United Kingdom. We need to think seriously about wealth creation and not just about government intervention. The proposed reforms of the banking system have already attracted much attention and will deliver added strength to our economic growth. The banking system must serve the needs of the economy. We should all be concerned at the high level of youth unemployment. I am glad that my party takes this problem seriously and includes it in the eight key criteria on which economic policy can be judged. Tax competitiveness should also be a factor, as we need to ensure that we attract global wealth creation to our shores. We should not be afraid of creating a comparative advantage over our competitors, as we need to create an economic climate that thrives and creates wealth through dynamism and innovation.
We cannot expect to tackle the fiscal crisis without adequate reform of our public services, which will need to demonstrate value for money. In recognising the contribution that innovation can provide in supporting the green economy, we can exploit the advantages that will emerge in the international market. These are the eight critical steps that will restore the credibility that is so lacking in our current economic system. I do not feel that this Bill, on its own, will improve the situation regarding our credibility.
In conclusion, I am pleased that the Government appear to recognise the need for action in restoring fiscal responsibility to the top of our economic management; but a real programme of action to reduce the deficit and to make people want to invest here will do far more than another piece of legislation enshrining yet another target. Actions will count more than words, and it is time to stop talking and to start acting. If this Bill makes a positive contribution to that, it will be worth while, but I am not without doubts.
My Lords, at first sight the Bill appears to infringe one of the fundamental principles of welfare economics; namely, that reducing the size of the choice set available to a decision-maker cannot improve the outcome of the decision he has to take. That is taught in first-year economics—or what the Americans call Economics 101. In so far as noble Lords opposite have any knowledge of economics at all, which I am now beginning to doubt, that limit must be Economics 101. But there is a vast amount more economics to be learnt than that.
Research and behavioural economics, together with the theory of games, show that the simple proposition that I have just mentioned is not always valid. The best analogy for our purposes today—albeit, like all analogies, it is imperfect—is addictive behaviour. A smoker would find it easier to give up the habit if severe limitations to the purchase of cigarettes were put in his way. If he were also able to take out a contract which penalised him significantly if he puffed on a cigarette again, that would, a fortiori, help him even more.
What concerns us here is the bad habit or, dare I say, the addiction to excessive public expenditure. The Government are committed to reducing public expenditure to a level and rate of growth that is sustainable in the long run. The Bill rightly seeks to reinforce that commitment by placing it on the statute book. That is an exactly correct move on the part of the Government. I am horrified that noble Lords opposite do not seem to have any glimmering of understanding, for obvious party political reasons, of what the Government are seeking to achieve.
The noble Lord used the analogy of the cigarette smoker and said that there was a necessity for sanctions. Could he outline the sanctions in this Bill?
I have a whole speech to make and am glad that the noble Lord is at least sitting through it. Not everyone who has spoken seems to have felt the need to hear me. And now I have lost my place.
We have been reminded that we are in a difficult position because the Speaker has certified this as a money Bill, which is a judgment I find difficult to comprehend. But the Speaker’s word is law and he has no need to justify what he says explicitly. The result is that we cannot amend the Bill, particularly in the direction in which I should like to go, which is my reference to the noble Lord who has just intervened. I should certainly like it to be tougher. But the fact that we cannot amend it is our problem. I do not know what the noble Lord’s honourable friends and right honourable friends in another place were doing in their failure to bring the Government to account on this Bill, but perhaps we will learn about that from another speaker.
However, the Bill draws our attention to progress reports and compliance reports and, above all, it reinforces accountability to Parliament. We should remember that we are still part of Parliament. I therefore assume that when the Bill becomes law, we will be able to deal with the accountability side via our Finance Sub-Committee of the Economic Affairs Committee. In that committee, we could examine all the detailed points. Again, as it is a money Bill, the other place does not have to take any notice of us, but it cannot stop us saying what we have to say.
The noble Lord has asked about penalties, a matter which also bothers me. However, if the Government fail in their public expenditure commitments, the Prime Minister and the Chancellor will at least have to suffer the shame and indignity of living through it being pointed out. My difficulty—and this is my response to the noble Lord opposite—is that I cannot conjure up any other penalty for failing to hit the financial targets, and I have not heard anyone offer anything better. That is true of Parliament and the world generally.
Is the right solution—I say this as a joke—to include in the Bill a provision stating that if the Government do not meet their financial targets, the Chancellor and the Prime Minister must pay the excess out of their own pockets? That seems a bit much. It would also be incompatible with our constitution, unwritten as it is, to say that they must automatically resign. So I agree that the issue of penalties is a problem. I shall never be a Minister, let alone a Chancellor, but I would be ashamed if I had to live through putting out figures and then not achieving them because I was at fault. The commitment that the Government are making in the Bill is not trivial.
The objectives of economic policy are full employment on a sustainable growth path and a low and stable rate of inflation. The optimists claim that all of those are compatible and achievable while the pessimists deny that they are. The pessimists say that except in the long run, when we are all dead, we have to select one objective above the others. I have always been inclined to the optimistic end of the spectrum. But recent economic experience has moved me away somewhat. Everyone, including all the speakers today, supports fiscal responsibility; by which they mean reductions in the annual fiscal deficit and the government debt-to-GDP ratio. That requires a combination of public expenditure cuts and taxation increases.
However, in speeches in your Lordships' House, Peers always add a proviso when speaking of public expenditure. Without exception, they say: “I am totally in favour of cuts in public expenditure”, except for whatever area is dear to their heart. That is true of farm subsidies, university finance, medical research, various parts of the NHS amounting to the NHS in toto, homecare for the elderly, poverty eradication and child support. The list is endless. I ask myself this: who except for me is in favour of public expenditure cuts, with no ifs or buts? In the cases I have referred to, Peers uniformly will tell us that if this bit of medical research is not done or the number of university places is cut down, the world will come to an end. I would say that if we do not get public finance in order, that is what will cause the world to come to an end.
I want to make another clear party political point. I long to hear anything from the Leader of the Opposition in the other place that gives any sort of indication of what he would actually cut. I know that he is desperate to win the general election and become Prime Minister, but if he really believes in fiscal responsibility—and let us not forget that we are talking about tens of billions here—he owes it to the country to say where he will find those tens of billions. Until he does, I for one am finding it impossible to take any advice from noble Lords opposite.
I feel strongly that in producing the fiscal outcome we want, the right path is on the public expenditure side. I do not favour—with one exception which I am about to mention—the path of vast tax increases. Although we can talk about marginal rates in certain areas, we have broadly the right average level of taxation to GDP. But if there have to be some tax increases, the obvious place to look at is VAT. I would remove all the existing exemptions from the payment of VAT. The exemptions distort the price system. They do not and never have made any fiscal sense. Of course, if any Government did that the cries of pain would be deafening.
My last point is to disagree totally with the noble Lord, Lord Lawson, who I think was most irresponsible in his remarks, quite apart from giving us a misleading account of the past. The technical problem on public expenditure cuts is one of timing. The Government have to convince everybody that the cuts will definitely be made, which is the purpose of this Bill, but that they will not come into effect before the recovery is well under way. Although the recovery itself must be led by private investment and exports, we have to bear in mind that some of that will itself depend on public expenditure. We are therefore obliged to appreciate how difficult economic policy-making is, and let me say that I am extremely glad that I am not in charge of it.
In conclusion, what I would advocate is a suggestion made by my noble friend Lord Barnett, who has been the Chief Secretary. I mention this specifically to my noble friend Lord Myners. All government departments should be told immediately that they must plan to cut their expenditure for the next fiscal year. I would suggest a figure of 5 per cent. I have pulled that figure out of a hat, and if someone does not like it, I would say, “Let us try 10 per cent”. That would focus minds, and if it were public knowledge—I am talking now about the next fiscal year, which the noble Lord, Lord Lawson, deplores—that would give confidence to the markets and others who have to take major decisions on these matters.
My Lords, it is a pleasure to follow the noble Lord, Lord Peston. I just want to record that although I am sure that my economics are out of date, I seem to remember that there was a day when savings equalled investment—not, I think, a formula which is followed by this Government. It is always a disappointment when the Minister follows his text because we have become used to enjoyable ad libbing, and it was not at all to the encouragement of enjoyment today that there was no departure. I suppose there will not be any departure now because the noble Lord, Lord Barnett, is not in his place. I want to make one reflection on the global recession. No one seems to have mentioned China and its role in perhaps throwing dust about before the whole thing started, or its role now, with the rate of growth that it is enjoying. Indeed, in a lesser but not insignificant way, no one seems to have mentioned India.
I am not sure that it would ever be worth spending any time on this Bill. It is like one of those games that children play, with rules that can be changed in the middle—in this case, by the Treasury for the Treasury and relying upon such woolly documents as the Code for Fiscal Stability, which is often mentioned in the Bill. This code carries a low index of credibility if Google’s record of hits is anything to go by. There is also the annual Economic and Fiscal Strategy Report, with its strategy lost in a mass of detail, subsequently revised. When Governments run out of road, they resort to strategy. It is an uneasy haven where there are many academic practitioners but a scarcity of those who can implement. Again, I refer to the speech of the noble Lord, Lord Peston, and remind him gently that economics does get muddled up with politics. Indeed, these reports, which are not a popular read, contain little that can be recalled as successful strategy.
Nevertheless, behind this slimly virtual Bill lies an important principle. It is a gesture; it is said to convey a message. While it is true that messages can be important, they should not be delivered by legislation. Legislation should not be about gestures, or about messages, or about games whose rules are bound to be broken. In contrast, we depend upon respect for good law and our willingness to live within that law. Unenforceable legislation is by definition bad legislation.
As has already been mentioned in the debate by, I think, the noble Lord, Lord MacGregor, no respect has been shown for this Bill either inside or outside Parliament, and I do not feel that the speeches from the Benches opposite have shown great respect for the Bill itself. Indeed, there never will be respect for it, only speculation. Is it an ineffective attempt to send a message to the bond market? Is it a dithering attempt to fill in time before reality returns, or is it just designed to blow up in some four years’ time amid an artificial media frenzy? That is silly season stuff. Playing this sort of frivolous game with Parliament does its shaky reputation no good at all. Legislation is meant to be reasoned and necessary, and thus to be both sensible and acceptably enforceable within the law. Not so this Bill. When it becomes an Act, it will need to be repealed as soon as possible.
My Lords, I begin by offering my commiserations to the Minister. He has had a distinguished career in the City, as I have more reason than many in this House to know, and he has been sent here today to take the fig leaf and defend the indefensible. It is more than indefensible; it is also disreputable. In the progress of this Bill, there will be damage to the reputation of the country abroad and damage to the reputation of Parliament at home because both those audiences, whether abroad or at home, believe that it has no contact with reality. Along the way it will also do some damage to the reputation of the Labour Government, but that is something which I can regard with equanimity.
I shall come on to the disreputable nature of the Bill, but before doing so I would like to dwell for a moment or two on the way that the Government—I emphasise that it is the Government—have handled the proceedings of the Bill so far. On Second Reading, the Chancellor of the Exchequer placed great emphasis on the importance of the Bill. He said:
“There is no doubt that we face a huge challenge as a country. There will be difficult judgments over the next few years. I have said before that some tough decisions will have to be taken …That is why it is important that we get it right … This Bill will help us to achieve that”.—[Official Report, Commons, 5/1/10; col. 71.]
I read that as a ringing endorsement which emphasises the central nature of the economic issue to the country’s future—who would demur from that?—and the role of the Bill in tackling it. It is therefore surprising that having emphasised the Bill so much, the Government should allocate only four hours and 45 minutes for its discussion in Committee—that is very short—and a further 45 minutes immediately after for Third Reading. The Bill began at 1.35 pm on 20 January and finished by 7 pm. For major legislation, that is quite a short time.
The Bill is organisationally disreputable from the Government’s point of view. When you read the Hansard report of the Second Reading and the Committee proceedings, it is astonishing how little support for the Bill there is from the Government Back-Benchers; they either do not believe it or do not agree with it, or possibly both. Indeed, two of the three speeches made from the Government Back Benches at Second Reading were opposed to the Bill. In Committee, only one Back-Bencher, Mark Todd, the Member for South Derbyshire, felt able to make some vague noises of support. He said:
“I am puzzled by the reasons for using legislation in this way … I can see some value in at least facilitating an orderly debate on a subject … There is no common view of the data set on which we base our understanding”.—[Official Report, Commons, 20/1/10; col. 335.]
By any stretch of the imagination, that is lukewarm support. Therefore, for the Government then to have a whipped majority of the size that they had, it is not surprising that the public regard the proceedings in Parliament with a degree of cynicism.
Turning to the Bill, my noble friend Lord MacGregor referred to Richard Lambert and the description of it being the fat man who after Christmas joins the gym. I saw this description in a leader in the Times and still thought it was apposite—either the Times heard Mr Lambert or Mr Lambert read the Times; I do not know which. The FT put it even better. It said that the Government believe in the “announce and it will happen” approach to government.
The Bill is disreputable because it is deceptive. It is deceptive about numbers, about accuracy, about relevance and about sanctions. How the Minister, for whom I have the greatest respect, could read out paragraph 3 of the Explanatory Notes about transparency, stability, responsibility, fairness and efficiency with a straight face, I do not know.
Let me deal with the deceptive nature about numbers, transparency and accuracy. Over the past few years we have had fascinating debates on the make-up of government finances. I recall my noble friend Lord Saatchi trying at some length to discover whether PFI projects form part of the public sector borrowing; not huge clarity was achieved. Of course, it is not only the PFI; there are also the public/private partnerships, Network Rail and the bank bail-outs. However, there is, I am afraid, a much larger elephant in the corner of the room because the Prime Minister, when he was the Chancellor of the Exchequer, drove a stake through the heart of private sector final salary pension schemes. Such schemes, I am sure, would have had a difficult time because of increasing longevity, but he did for them finally. He did so in three ways: he robbed the private sector pension schemes of billions by tax changes; he then created a private sector regulator with extensive and quite arbitrary powers; and, finally, he developed the perfect storm for pensions—low interest rates, so that the discounted value of liabilities was high, and low asset values, so that the value of assets held to discharge those liabilities was very low.
Meanwhile, in the public sector, where there are extensive inflation-proof final salary pension schemes, nothing was done. Preparations were undertaken but the union paymasters said no and everything was abandoned. The deficit in public sector pensions is truly terrifying; it runs to hundreds of billions of pounds—some people have said £1 trillion. I refer the Minister to the Evening Standard of Monday 1 February, which stated: “Black hole in London councils’ pension funds grows to £10 billion”. That is only London councils’ pension schemes. To make the Bill credible, we need greater clarity and transparency about assets and liabilities.
Members of the House will have received the briefing from the Institute of Chartered Accountants in England and Wales and it is worth putting on the record two of the points it makes. The briefing states:
“However, significant problems with the transparency and accountability of UK public spending decisions remain to be addressed … In particular, sustained commitment is required behind the Whole of Government Accounts (WGA) initiative. WGA promises to provide robust, audited information across the public sector. WGA will make information more transparent and more accessible … It will be the only source of information where the public sector’s assets and liabilities are brought together ‘on balance sheet’”.
We need to find a way to improve transparency and accuracy if the Bill is to have any value.
Secondly, the Bill is deceptive about effectiveness. When he introduced the Bill, the Minister said that the levels of uncertainty about our economic future are receding. However, let us suppose that his hopes—and probably all our hopes—are dashed and we face a double-dip recession. A large proportion of government spending is in the automatic stabilisers—social security payments, employment benefits and so on—and the idea that in a recession these could be reduced or removed is laughable. What will the Government do? They will abandon the Bill—the whole thing—just as they abandoned the golden rule. For years the Prime Minister lectured us about the golden rule and its sacrosanct nature. Now, coyly, paragraph 6 of the Explanatory Notes states:
“In the 2008 Pre-Budget Report the Government announced that it would temporarily depart from the golden rule and the sustainable investment rule until the global shocks had worked their way through the economy in full”.
The noble Lord, Lord Peston, said that the answer to this Bill was to have some shame. There appears to be no shame in abandoning this central tenet that the then Chancellor, now the Prime Minister, has lectured us on over the years. This legislation will go the same way.
The Bill is also deceptive about sanctions. As my noble friend Lord Lawson said, statute law is only of value if it is enforceable. Unenforceable laws merely bring the law itself into disrepute, and Clause 4(3) gives the game away.
I have said that the Bill is deceptive in many places, but there is one group that the Bill is meant to deceive but has not deceived: those people who the Chancellor needs to buy all the gilts he will have to sell over the next few years. Unsurprisingly, they are not deceived and confidence in the Chancellor and the Government can be measured in two ways: exchange rates and interest rates, both of which, in the three short weeks since Second Reading, have moved against the Government and will lead to a much more expensive and difficult time in the future.
The Bill is the latest and one of the most egregious examples of cavalier government by new Labour. Initiative after initiative has been trumpeted with headline-grabbing announcements, all too many of which have run into the sand because little, if any, thought has been given as to how they should be implemented or what their consequences would be. As the Financial Times put it, “announce it and it will happen”. Sometimes initiatives have even been recycled and relaunched with further trumpeting, but to no greater effect.
The Labour Party has said that it wants to dominate the agenda for years to come. Well, I think it has succeeded in this, albeit not quite in the way it intended, because the next Government will spend five or 10 years trying to repair the damage that it has left behind. This Bill is perhaps a fitting epitaph for a man who claimed to have abolished boom and bust and ended up delivering the biggest bust of all.
My Lords, that was an uncharacteristically political speech by the noble Lord, Lord Hodgson of Astley Abbotts. Perhaps I can reply in kind. He mentioned the elephant in the room and alluded in that connection to the “union paymasters” of the Labour Party as regards pensions. That is peanuts when compared with the reliance of the Conservative Party on the City of London, which can do no wrong. It is because of that fact that David Cameron is now wriggling on the end of a hook. The hubris of the City of London, after all, caused the biggest hole in the economy since 1931. Since Lehman Brothers, we have been in what I would call a “Roosevelt moment”. The fiscal balance, after all, can only improve as growth improves.
We all know that the real agenda of the party opposite is first to get elected and then to make “savage cuts”—as the widely used expression goes—from May onwards. The Conservatives are now being very careful, running scared as they are, about saying that. On whether we need savage cuts, Sir Samuel Brittan wrote last week:
“My own view is that there is little case for action just yet. But the cat may jump in either direction … In any case, I would base policy on the state of the economy - real growth and inflation - rather than on a narrow view of the government's own finances, and avoid like the plague the draconian spending cuts and tax increases set out as ‘options’ by the Institute of Fiscal Studies”.
I turn to remarks made yesterday by the Nobel Prize-winning economist Joseph Stiglitz, who generally takes the line that the Prime Minister, whom he met yesterday with the Chancellor, should ignore what he calls “fiscal fetishism”, defy the markets or even extend the fiscal stimulus. I am not a paid-up member of the Joseph Stiglitz fan club, but he is surely right to warn that financial markets were like a “crazy man” that could not be appeased with cuts in public spending. He said:
“You're dealing with a crazy man. You're asking what I can do to placate a crazy man? Having got what he wants he will still kill you”.
He rejected the idea recently put forward by David Cameron that some symbolic trimming of the budget deficit in the current year might regain the confidence of the financial markets. He said that it was “unconscionable” for the ratings agencies to threaten to downgrade Britain’s creditworthiness, given their poor record in the crisis. He also said:
“Fiscal fetishism is really dangerous”.
He believes that if financial markets refuse to buy British government bonds, or gilts, the Bank of England could buy them instead—that is the case for extending quantitative easing if the circumstances arise—because, as has been said, a premature withdrawal of stimulus is more likely to produce a double dip.
I cannot see why the party opposite, which has over the years bought into having frameworks of targets and supported Gordon Brown, when he was Chancellor, in a whole range of medium-term targets, now purports to believe that the targets in the Bill are not conscionable. Earlier frameworks were supported. I mention the example of the Maastricht criteria, which seem now to be supported with some numbers and guidelines. On that basis, the European Union—meeting, I think, today or tomorrow—will wish to toughen up its relationship with Greece. Toughening up a relationship begins with having some numbers. I am not sure that there was any legal significance—I do not remember; I stand to be corrected if I am wrong—in the famous five economic tests for joining the euro being supposedly written on the back of a cigarette packet. This Bill is a lot more nicely written out, but no one doubts that those were important criteria to have written down.
Perhaps the noble Lord will allow me to correct him on a point of history. The whole point of the five tests, which were introduced by Mr Gordon Brown when he was Chancellor, was to make him the arbiter of whether we should go into the euro and to prevent Mr Blair moving to bring us in. It was done for political reasons; it had nothing to do with economic analysis. Therefore, it has absolutely no part in this debate.
As a version of history, that is pure invention. I think that the noble Lord, Lord Lawson, agrees with me that the tests were effective despite their not being of the type advocated—namely, all-singing-and-dancing sanctions connected with something—and despite there apparently being no value in a government policy statement of a framework. The noble Lord, Lord Lawson, has just kicked through his own goal.
The Explanatory Memorandum is very simple and clear; I do not know why people are having a go at it on those grounds. As has been said, points made in the House of Commons were mostly second-order; nothing landed a punch. The only one of note was a question about whether the overall deficit included the impact of the automatic stabiliser. The answer, which I think the Treasury would confirm, is that the Fiscal Responsibility Bill includes targets for the overall deficit, rather than the structural deficit. Perhaps my noble friend will confirm that that is the case.
I would like to see a markets responsibility Bill alongside a Fiscal Responsibility Bill. That is the background to the blame-game being started by the Conservative Party—“just blame the Government”. What about blaming its friends in the banks and the City of London generally, to whom it is totally in thrall to get its finance?
My Lords, although the Financial Services Secretary was as loyal as ever to the virtues of collective responsibility, it is no wonder that he lacked his natural ebullience today. His deadpan delivery, masking qualms about the Bill, reminded me of old Stone Face himself, the great Buster Keaton. Many of your Lordships will remember that Buster Keaton’s final silent film was aptly called “The Railroader”.
This pointless legislation has been railroaded through Parliament by use of a guillotine in another place. Only four and a half hours of debate were allocated to its Committee, Report and Third Reading stages. Committee scrutiny never stretched beyond Clause 1. So much for Gordon Brown’s much trumpeted promise in his 2007 Green Paper on the governance of Britain that the Government would,
“act to ensure that it is answerable to Parliament”.
He said those words at a press conference.
I note with an unusual form of admiration the Bill’s certification as a money Bill, but observe with greater interest a masterpiece of irony in paragraph 31 of the Explanatory Notes, which states:
“There are no significant financial effects of the Bill”.
I could not have put it better myself.
I fancy that this Bill was forced on a reluctant Treasury by Downing Street’s teenage spin doctors posing as policy advisers. It has been disparaged across the spectrum as one more boneless wonder and one more headline. No Labour Back Bencher spoke in favour at Second Reading in another place. Charles Clarke, the former Home Secretary, ridiculed it as “vacuous and irrelevant”. Paragraph 6 of the Explanatory Notes unveils the truth behind the Bill when it claims that in the November 2008 Pre-Budget Report,
“the Government announced that it would temporarily depart from the golden rule … until the global shocks had worked their way through the economy”.
Thus it was inferred that the golden rule was fragmented by the collapse of the markets in September 2008. As most of us know, the truth is otherwise. The key date for the death of the golden rule was 18 July 2008, two months before the collapse in the markets. On that date, the Treasury sanctioned the golden rule’s obituaries. The Financial Times splashed its front page, disclosing that the Treasury had extinguished the golden rule. Robert Peston, no less, with his impeccable links with the Treasury, confirmed its termination and David Smith, the economics editor of the Sunday Times declared it part of history’s dustbin. These verdicts were reached on the basis of Treasury briefings on 18 July 2008, two months before the collapse in the markets, because by then our public finances were in disarray. No wonder this led the eminent economist, the noble Lord, Lord Desai, who is sadly not in his place, to declare that the golden rule had been, “fudged and fudged again” by Mr Brown, leaving Mr Darling an “empty kitty”.
The blame for the crisis in our public finances lies squarely with Mr Brown, and begs the question that if our public finances were in such disarray in July 2008, thanks to him, why did the Government not introduce this paltry specimen of legislation then instead of now? Why do we have to wait two years for this Bill? This Bill is no more than a comical booby-trap, which merits instant disposal by an incoming Administration. It serves no purpose and fools only greenhorns. The next Government, irrespective of hue, must establish a more credible framework for tackling our public finances, which requires an immediate Budget followed swiftly by a public expenditure White Paper along the lines of the one published by my noble and learned friend Lord Howe of Aberavon in 1979.
I found what the noble Lord said there most intriguing. Is he advising his right honourable friend the shadow Chancellor that he must immediately, were the misfortune to occur of him becoming the actual Chancellor, introduce major public expenditure cuts? Is it his view that that is the right path to go along immediately after this coming May, were he to be in power?
I share the view expressed by my noble friend Lord Lawson in that respect. Of course, a lot of it will have to do with how the markets behave. As the noble Lord will realise, it is very often the markets that put pressures on new Governments, just as the markets at the moment are putting pressure on the Club Med countries. That is a flexible position that any Chancellor needs to be aware of, and I am sure that the shadow Chancellor is even more aware of that than the noble Lord, Lord Peston.
Can the noble Lord clarify further? When he refers to markets, does he assert that they are never politically motivated? For example, this week they have had people getting together to put huge bets against the euro, which has incidentally had a stable relationship with the pound sterling for several months. Is the market to be worshipped? Is that the point that he is making?
If the noble Lord wants the real answer to that question, I advise him to go as fast as possible after this debate to the Library, where he will find remarks made earlier in the week and last week by the president of the Bundesbank. No one could claim that his words were political in the context of what is happening at the moment in Greece.
If an immediate Budget is followed swiftly by a public expenditure White Paper and a form of the MTFS, as described by my noble friend Lord Lawson, who put it together in 1980, further action is a necessity. As I said in part in my reply to the noble Lord, Lord Peston, first and foremost it should be carried out to avert a potential UK gilt strike. Sovereign debt contagion is lethal. We are experiencing the tensest spell in the gilt markets since the 1970s, and the markets will need to be certain that a British Government have the willpower—to use the word of my noble friend Lord Lawson—to slice our dangerous deficit. We have already witnessed pressure on Greece, where plans to cut the deficit are frankly implausible. In principle, Greece must raise $50 billion by 30 June to avoid default. Portugal lacks a consensus on austerity and the green light is still shown to the regions for mounting up further debts. Spain could of course be in the firing line soon. We hope and pray that these nations are acting as our proxies until polling day. After all, according to PIMCO, we are resting on a bed of nitro-glycerine.
Questions over our creditworthiness have also been raised by Fitch. Standard & Poor’s, another agency, has amended its outlook of the UK from stable to negative. Of course, the chief executive of the Debt Management Office, an important figure, voiced concerns a fortnight ago. Last week the Institute for Fiscal Studies concluded that reductions in public expenditure would have to reach 18 per cent to 24 per cent in some non-protected departments to pacify the markets. Even if the next Government, whatever their hue, take action, the risks of inflation are clear and present, as I have twice sought to persuade your Lordships. Inflation overshot Bank of England forecasts for the whole of last year in every single month. Andrew Sentance, an MPC member, as well as Spencer Dale, the Bank of England’s chief economist, have delivered warnings that inflationary pressures are lurking, in spare capacity, oil hikes, commodity prices as well as asset bubbles in the Far East. This leads to the question: can interest rates remain so accommodating if UK inflation breaks barriers? It also prompts the inquiry about whether we should retain the present measure of CPI. Whatever the consequences, however, the post-election Chancellor must insist on strict ceilings for inflation. Otherwise, bond yields will go haywire and the cost of borrowing will hamper our recovery. I was pleased to read recently that the shadow Chancellor has brought anti-inflation rhetoric back into the picture.
Our fiscal deficit runs at more than 13 per cent of GDP. It is worse than the Club Med countries. Everywhere, markets are querying the willpower or ability of the British Government to repay their debts. They are unimpressed with this Bill; it is an object of their scorn. As Buster Keaton would have put it in his great vaudeville days, it is about as much use as handing a comb to a bald man.
My Lords, this year the UK is set to record its largest budget deficit since the Second World War. It is one of the largest in the industrial world. The financial crisis has significantly increased the structural deficit, which means that, in the absence of large spending cuts and tax increases, borrowing will remain high and the public debt will rise to unsustainable levels. In other words, the fiscal situation is becoming very parlous.
The Government have form on the issue of fiscal responsibility. In his famous— or should I say infamous—Mansion House speech of 1997, the present Prime Minister set out his fiscal rules. He said:
“We will introduce tough rules for Government borrowing”.
A year later, he told us:
“I will never let the deficit get out of control. We will not spend money that we have not earned”.
Well, we all know what happened to those fiscal rules. With the golden rule, the Chancellor moved the goalposts three times between 2005 and 2007. He altered the start date of the current economic cycle once, and the end date twice—both backwards and forwards. The Institute for Fiscal Studies, or IFS, said in its March 2007 Budget briefing:
“The perception that the Chancellor has moved the goalposts and has delayed the tax-raising measures and cuts in spending plans that we and other commentators had been saying will be necessary until after the 2005 election has undermined the credibility of the fiscal framework”.
Like other speakers, I have sympathy with the Minister for introducing the Bill here. I also absolve him and the Treasury from responsibility for a scheme dreamt up by the Prime Minister and Ed Balls. I looked for examples of other countries producing fiscal responsibilities; I could find only one, and that was Nigeria—not a very encouraging precedent. I am not sure how successful it has been. The other scheme, the Gramm-Rudman amendment, seemed to perish after several years.
What do independent experts think of the Fiscal Responsibility Bill? The IFS said that it was not immediately obvious why breaching the targets set out within it should involve a greater political or reputational cost than breaching or finessing the fiscal rules set out under the Code for Fiscal Stability that was enshrined in legislation in 1998. Independent economic observers had lost confidence in the fiscal rules well before the recent crisis. In its new year survey of the views of independent economists in January 2007, the Financial Times concluded:
“Almost none use the Chancellor’s fiscal rules any more as an indication of the health of the public finances”.
According to the journal Public Finance, Gemma Tetlow of the IFS added:
“The concept of it as a law is strange. There is usually a penalty for breaking a law, but it’s hard to say what that might be. There really aren’t any sanctions that can be applied on a chancellor or government if they fail to meet it, with the exception of embarrassment. It might be more credible if they set out their plans on spending”—
that is, setting out the total departmental spending and giving a date for the next spending review. Willem Buiter, one of the economists appointed by the Prime Minister to the Monetary Policy Committee, said:
“Fiscal responsibility bills are the acts of the fiscally irresponsible to con the public”.
Finally, one leading City economist, Michael Saunders of Citibank, has said:
“The Government’s plans for legislation to cut the deficit are not convincing, and probably just camouflage—a sort of fiscal fig leaf for the lack of genuine action”.
Why are those independent experts so critical when, on the face of it, a Bill to control borrowing would seem to be sensible? Carefully considered legislation, debated in full—without a guillotine—and suitably amended, would give reassurance to the markets. That is particularly important as there needs to be some £180 billion of funding over the next year, and the prop of quantitative easing has been removed for the moment. Other speakers have talked about the gilt market. One can see some of the demand for gilts being satisfied by the banks, but there could still be a funding gap of, say, some £80 billion.
Once the Bill is examined in more detail, the reasons start to become clear. Clause 1 says that by 2014 public sector net borrowing as a percentage of gross domestic product must be no more than half of what it was in 2010. Nowhere does it say how that will be achieved. I listened to the Minister carefully; he talked about how the deficit will be decreased by means of growth, but I did not hear him say much about spending cuts or tax increases. There is to be no Comprehensive Spending Review showing in detail how spending will be cut, and there is unlikely to be one ahead of the election.
Placing duties on the Treasury to reduce public sector borrowing and the deficit is not a guarantee that that would happen. Every Budget and Pre-Budget Report produced since 2003 by the Chancellor and his predecessor has promised falling net debt at the end of a five-year horizon, and every one of those forecasts has been wrong. In times of boom and bust the present Chancellor, according to our shadow Chancellor in the other place, has had his total borrowing forecasts wrong to the tune of £560 billion since he entered 11 Downing Street. It is now four times higher than when he announced his forecast for the PBR in 2007, after the credit crunch began. How can we believe his latest forecast just because it is written into the Red Book?
John Redwood, in another place, pointed out a further anomaly within Clause 1. He said:
“Clause 1 tells us that ‘in each of the … years 2011 to 2016, public sector net borrowing expressed as a percentage of gross domestic product’ has to fall compared with the preceding year. To ensure that it falls by a reasonable amount, there is the added rider in subsection (2) that it needs to halve by 2014”.—[Official Report, Commons, 5/1/10; col. 98.]
While I am not an economist, it seems to me that there could be individual years when the economy was growing where the deficit could be permitted to increase even if the percentage decreased. However, if in that period we had another unfortunate period, when the economy was not growing, it would be necessary to reverse and cut borrowing in cash terms. Can the Minister give guidance on these points? The Government should change it and come up with a formula that recognises the economic cycle.
Clause 2, as other speakers have mentioned, contains the strange concept of the Treasury placing an order on itself, which does not seem a very daunting imposition that will make the Treasury sit up and take notice. Again, as other speakers have said, Clause 3 seems fatally flawed because there are no penalties if the targets are not met. As the shadow Chancellor said in another place:
“This must be the first law introduced into Parliament that contains absolutely no legal sanction whatever for those who break it”.—[Official Report, Commons, 5/1/10; col. 74.]
Overall, the Bill is very disappointing and has the appearance of being cobbled together in a great hurry for election purposes. As other noble Lords have stated, only two Labour Back-Benchers spoke at Second Reading and they were both unable to support the Government. The Chancellor says that he has produced this Bill to cut the debt. At the same time the Government are irresponsibly increasing it by introducing the Personal Care at Home Bill. This measure, which would be laudable if the money was in the government coffers, will cost at least £670 million, and several expert organisations, such as the Association of Directors of Adult Social Services across 61 councils, believe that the full cost will be more than £1 billion. As I have said several times, the Bill is opposed by the noble Lord, Lord Warner, a former Health Minister, and the noble Lord, Lord Lipsey, a former member of the Royal Commission on Long-Term Care, both of whom have some knowledge on the subject. The strength of my argument is endorsed by the leader in today’s Times in which more than 70 leaders of social care throughout England warn that the Government’s plans to provide free homecare are flawed, unfunded and will force cuts to current services. The Minister has refused to comment on two previous occasions about my concerns over the financial implications of the Bill. Can he tell me why we can afford to spend £1 billion at this time of borrowed money, however laudable the project?
It is a shocking reflection of the way that the Government have programmed business in the other place that this Bill, which could have been important if discussed and amended properly, was, as other speakers have said, rushed through in two days without Clauses 2 to 6 even being considered by the other place. For that reason I shall support the amendment of my noble friend Lady Noakes.
My Lords, a paradox lies at the heart of today’s debate. I suspect that everybody in the Chamber agrees with the aims of the Bill—to halve the deficit over the lifetime of the next Parliament—but, equally, everybody knows that the Bill is completely irrelevant to achieving that aim. There are a number of reasons for this irrelevance. First, it does not set out a path towards achieving the aim; it sets out only a distant goal. As the noble Lord, Lord Lawson, pointed out, it allows for the seductive Augustinian argument that it is indeed a very noble aim, and we must meet it, but we do not need to meet it now—we will wait until later because it is some distance into the future.
The second reason for the irrelevance of the Bill relates to sanctions. The noble Lord, Lord Peston, talked about the Bill in the context of an addiction. He said that if you have an addiction, increasing the costs of feeding it makes it less likely that you will continue with it. The problem is that if you have a serious addiction—for example, alcoholism—the costs of feeding it are almost irrelevant. The only way to tackle it is to have a fundamental change of heart and an iron will to maintain that change of heart through difficult times. As the noble Lord, Lord Peston, discussed, being ashamed is almost totally irrelevant. People who have an addiction very often are ashamed most of the time but that does not stop them having an addiction. Therefore, the Bill, by possibly making Governments feel mildly ashamed from time to time, will be ineffective in facing down the addiction of expensive expenditure.
Thirdly, the Bill does not admit the possibility of unexpected shocks to the economy blowing the Government off course. Suppose, for example, that the Government decide, as they will do—any Government will do—to back-end load the expenditure reductions towards the second half of the next Parliament. Suppose that in 2014 we find ourselves—God forbid—in another major foreign war, or the world is hit by some other economic storm and the automatic stabilisers take effect. In those circumstances, what power would the Bill have—or should it have—to prevent the Government increasing expenditure to deal with the crisis, even if it meant that the terms of the Bill were breached? The answer, obviously, is that in those circumstances the Bill would be ignored. The noble Lord, Lord Desai, said that primary legislation would be required in those circumstances. Perhaps it would, but in the absence of a sanction perhaps it would not. In any event, I should have thought that a clause in a Finance Bill would consign this Bill to the rubbish heap of history.
That does not mean that we on these Benches are totally opposed to fiscal rules. There is a value in rules but, as we have seen in recent months, rules must have a means of dealing with exceptional circumstances. Incidentally, I took to the Skidelsky rule, which I had not heard adumbrated before. That is an extremely good rule for public expenditure and I hope that we shall discuss it. But with any rules we have, we need to have a get-out clause in extreme circumstances. Interestingly, the Bank of England Act has such a rule, which enables the Treasury to override the inflation target in exceptional circumstances. Any set of rules that we contemplate introducing around public expenditure in future should have such a get-out clause.
In introducing the Bill, the Minister said that it would increase parliamentary scrutiny of government fiscal policy. I do not see how it achieves that. Virtually all the provisions of the code for fiscal stability are already covered by information provided by the PBR and the Budget itself. The so-called Economic and Fiscal Strategy Report contains information which is certainly largely published already. The only exception I could see was in paragraph 41D, which suggests that the report should present illustrative projections of the outlook for the key fiscal aggregates for a period of not less than 10 years into the future. I think that is quite sensible, but that in itself does not justify a Bill and is something that the Government could do and should have done in any event.
The Government are missing an opportunity in terms of information being provided to Parliament—this was referred to by the noble Lord, Lord Hodgson—in the whole of government accounts project, the purpose of which is to enable parliamentarians to get a better handle on what on earth is going on in government expenditure. That project has, in the somewhat diplomatic language of the Institute of Chartered Accountants, been faltering. The Government should put some effort behind that project so that, at the very least, Parliament has a better view of what is really going on.
I agree that Parliament should have a greater role in the scrutiny of public expenditure, but this Bill will do absolutely nothing to effect this. A sustained period of detailed work undertaken by Parliament is required if Parliament is to exercise any scrutiny at all. I understand that the conventions of the House mean that it would be improper for me to suggest how the Commons might begin to do this although, if one talks to Members of another place about the scrutiny of public expenditure, it is clear that there is near universal agreement that it is not effectively done at the moment. It would certainly be possible for the Economic Affairs Committee of your Lordships' House to set up another sub-committee to look expressly at public expenditure. The area within that general ambit which I think needs particular attention and where Parliament could play a useful role is looking at themes which have a cross-cutting impact. I attended an event last week at which the chief executive of the British Library explained how she had cut sickness among staff at the library from 11.5 days per year, which is about the public sector average, to 6.5, which is slightly better than the private sector average, by taking a series of small steps which any public sector body could take but which most public sector bodies are not taking, with a possibility of huge savings in expenditure. That is the kind of issue on which Parliament could shine a light and a sub-committee of your Lordships' House could certainly do that.
At the moment, the Treasury is giving a lot of thought as to how best to undertake “fiscal consolidation”, which to me is a lovely new euphemism for public expenditure cuts. The Treasury has undertaken a survey of all the fiscal consolidations that have taken place in recent decades. The document on this has been obtained, in part at least, under freedom of information action. It reports that the IMF identified that, of 74 fiscal consolidation periods from 1974 to 1995, only 14 could be counted as successful. The document then sets out the common features of those successful consolidations, and contains a section called “Emerging themes”, which no doubt draws lessons from international experience. Unfortunately, that section has been blacked out in the document available to your Lordships and anyone else. While we can get some basic intelligence about what has been going on, the Treasury’s conclusions on what all these fiscal consolidations have shown are kept within the Treasury. Will the Minister consider publishing at the time of the Budget this document with the “Emerging themes” section available for public view, so that the rest of the world could see what the Treasury thinks can be learnt from a whole raft of initiatives to cut public expenditure in an effective way that have been taken in recent decades?
We have spent very little time today talking about what happens next and the substance of the cuts that will be made. The noble Lord, Lord Lawson, strongly advised that an incoming Conservative Government needed to take action within the first 50 days. Although it has a ring of truth, this is pretty different from at least the mood music coming out of the Conservative Party leadership in terms of the action that it will take.
Last week, we discussed at some length the substantive issues around fiscal consolidation and I shall not repeat today any of the arguments I made then. I will, however, repeat my conclusion. We will not have the much needed serious discussions about how we actually undertake fiscal consolidation and reduce the budget deficit until after the next election. That election cannot come soon enough.
My Lords, I thank all noble Lords who contributed to the debate. It has been a very wide-ranging debate in which many issues have been raised, all of which I found very interesting and have noted. One feature common to all the speeches was a clear commitment to the need for fiscal consolidation, a commitment which is of course at the heart of the Bill. As we have debated, the financial crisis and global recession have had a profound and persistent impact on the public finances in many major countries, resulting in a significant increase in government borrowings and, as a result, government debts. These severe economic shocks have hit every country in the world and have meant that we have had to be flexible in our response to changing circumstances—the noble Lord, Lord Skidelsky, referred to “black swan” events. Therefore, in the face of these shocks, as the Chancellor set out in the other place, the Government’s first priority has been, and will continue to be, to provide support to the economy.
Costs were of course incurred by stepping in; but not to have intervened would have meant even higher costs, burdening the economy over an even longer period. The Government have always been clear that support must be followed by steps to secure public finances. Our fiscal stimulus was deliberately time-limited to increase its impact during the downturn, bringing forward expenditure on capital projects and supporting sustainable public finances over the medium term.
The Government are confident but cautious about the prospects for the economy. As growth resumes and the economy becomes better placed to support tightening, fiscal policy will shift significantly towards consolidation. Well timed and planned fiscal consolidation will support economic growth during the recovery. As many noble Lords suggested, there is an issue of timing. The noble Lords, Lord Lawson and Lord Ryder, among others, pointed to the need to act swiftly. On the other hand, we heard contributions from my noble friends Lord Desai and Lord Peston and from the noble Lord, Lord Skidelsky, cautioning us against moving too quickly. My own view, as I said last week, is that the risks of moving too early considerably outweigh the risks of moving too late. They are asymmetrical in the sense that a premature move which tips the economy back into recession will not deliver the benefits that those advocating such a move would suggest.
The scale and quantum of the likely cuts are also a matter for judgment. I invite the noble Baroness, Lady Noakes, to talk a little in her closing speech about the scale of cuts that a Conservative Government would wish to introduce. It is clear to me from contributions from the other side that there is a lust for savage cuts in public expenditure, notwithstanding the lessons that we learnt from both the 1930s and the 1980s. We heard talk last week of the UK being the sick man of Europe. That is absolutely preposterous, but it is entirely consistent with a softening-up for the scale of cuts that I am sure a Conservative Government, if we have one, would have in mind. Indeed, to his credit, the noble Lord, Lord Forsyth of Drumlean—in a contribution which I read on a website with the somewhat curious name of Conservative Intelligence—suggests that there need to be cuts of £75 billion in government expenditure. That is quite extraordinary in terms of the consequences for the lives of British people and the prospects of British business. The sooner we have clarity of message—and I am looking to the noble Baroness to provide it—about the scale of cuts that a Conservative Government would contemplate, the better.
I am sure that the noble Lord wants to be fair. If he expects my noble friend Lady Noakes to outline the scale of cuts that a Conservative Government might want to introduce, will he first say what scale of cuts the present Government, of whom he is such a distinguished member, have in mind?
I thank the noble Lord, Lord Lawson, for that intervention. The scale of the Government’s approach to fiscal management is made very clear in the supporting schedules to the Pre-Budget Report. There is absolute clarity there about the glide path to fiscal responsibility that my right honourable friend the Chancellor of the Exchequer has in mind.
The Government have set out measures that reduce borrowing by £57 billion by 2013-14 and contribute to more than halving the deficit over four years. This Bill embeds this deficit reduction in legislation and sets further targets to reduce the deficit in each year to 2015-16. The fiscal consolidation plan extends from 2009-10 to 2015-16 and requires the Government to take very real and serious action to commit to going back towards fiscal consolidation and fiscally sustainable policies. By putting explicit targets in the legislation, the Government are demonstrating their commitment to delivering consolidation and the importance they place on action to ensure sound public finances in the medium term. These plans contribute to ensuring sustainable public finances in the medium term. Legislating provides certainty and stability for businesses and individuals regarding the future path of fiscal policy. Parliament is being given a new role in setting and monitoring the Government’s fiscal plans. In particular, Parliament must approve fiscal plans.
I am grateful to the Minister for giving way. I take it that he is on his peroration. If so, will he reassure the noble Lord, Lord Newby, and me that the whole of government accounts project will take place; and will he give us the timing, so that we have the transparency and accuracy that he says are so important?
I was going to come to that point when I dealt with the interventions of the noble Lord, Lord Newby. I had already written on my notepad that this was clearly a matter into which I should look, and that I will owe a letter to the noble Lord. I will of course send a letter to all noble Lords who participated in the debate. To my shame, this is not a project on which I have been required to focus a great deal of time over the past 12 months, so I need to become more familiar with the issues. I thank the noble Lord, Lord Hodgson, for his intervention.
Parliament is being given a new role in both setting and monitoring the Government's fiscal plans. In particular, Parliament must approve fiscal plans before they become law. This is a significant evolution of the extent to which the Government are to be held to account for their medium-term fiscal policy. I listened with great interest to the speech of the noble Lord, Lord Lawson of Blaby. His contribution towards encouraging Governments to set out with greater clarity their medium-term thinking is commendable: we have learnt and benefited greatly from the pioneering work in this sphere done by the noble Lord himself and by the noble and learned Lord, Lord Howe of Aberavon. We build upon that and seek to improve it, and to embody such requirements in law.
A number of noble Lords raised the question of selecting the pace of consolidation. This is a very difficult assessment. The Government's judgment is that tightening fiscal policy too quickly in 2011 would present risks. The Government’s judgment is that the economy will be better able to support a more rapid tightening in 2011-12. The projected tightening will be a significant consolidation and, as I said, will represent the sharpest average annual reduction in the budget deficit of any G7 country over the next four years.
As the Chancellor made clear in the other place, if growth proves to be stronger than we are forecasting—here I answer a point raised by the noble Lord, Lord Northbrook, in his thoughtful contribution—the first priority must be to get structural borrowing down even further. This is allowed for in the Bill, which sets fiscal ceilings but not floors. The legislation sets targets that the Government judge appropriate, but is drafted to allow overachievement. The ceilings are hard and binding. They are designed to provide certainty that the Government will deliver their consolidation plans, which are based on cautious assumptions.
As was debated in the other place, flexibility is important. It is worth noting that, subject to making progress in reducing borrowing every year, there is flexibility over the profile by which the deficit is halved by 2013-14. For example, if growth is lower and the impact of the automatic stabilisers is greater, there is the flexibility to accommodate this, as long as progress continues on reducing borrowing. That answers a point raised in the helpful contribution from my noble friend Lord Lea of Crondall, whose economic observations I support, although I could not possibly go as far as he did in his comments about the activities of bankers, many of whom are close personal friends as a result of my intimate engagement with them over the past 12 months.
In the event of significant and sustained economic shocks, such as those that we have faced over the past 18 months, the Chancellor would have to consider carefully what path of fiscal policy was appropriate for the economy. This would happen in the round, considered alongside other changes that affect the level of borrowing. Given the importance of these consolidation targets, the Bill has been designed so that any decision to depart from them would require new legislation. The Government would have to come back to Parliament if it were necessary to amend the targets set in the Bill.
Transparency is essential as an element in promoting wider understanding of the Government's objectives and as part of their fundamental democratic accountability. The Bill strengthens transparency. Parliament will take an active interest in the various reports produced in accordance with the Bill. That will stimulate debate and understanding. To the extent that the Government deviate from the path that has been set, noble Lords should not underestimate the shame, embarrassment and humiliation that would result. There are undoubted and very real sanctions in the Bill that would hit the pride of men and women of great standing.
The noble Baroness, Lady Noakes, and the noble Lord, Lord MacGregor of Pulham Market, asked what the point of legislating was. I hope that I answered that in my opening address, and again in these comments. Parliament’s role is being enhanced. In particular, Parliament must approve fiscal plans before they become law. This gives Parliament an oversight that it has previously not enjoyed. The IMF has set out that the strengthening of frameworks, including through fiscal responsibility laws, should support the global financial and fiscal adjustment that is necessary. I note the support of my noble friend Lord Desai for the value that will arise from the Bill.
The noble Lord, Lord Lawson of Blaby, made the point, to which I have already referred, that consolidation needs to start earlier. However, the Government's judgment is that the economy will be able to support much more rapid tightening in 2010-11, as GDP is forecast to accelerate from 1.5 per cent in 2010 to 3.75 per cent in 2011-12. There will be greater space for the MPC to use interest rates to manage any potential disinflationary impact. I note and appreciate the positive comments from the noble Lord, Lord Skidelsky, on the issue of timing.
The noble Lord, Lord Lawson, also asked why the UK has one of the worst fiscal positions of any developed economy. It is a perfectly reasonable question. The UK entered the downturn with a starting point of very low public debt—well below the G7 average. That was a consequence of effective economic management, before we found ourselves confronting a two-standard deviation global circumstance—the first year for 60 years in which global economic growth contracted. Governments across the world, along with institutions such as the IMF and the OECD, recognise that it is right to allow fiscal policy to support the economy in such difficult times. Global economic developments have had a profound impact on all countries, including the United Kingdom. However, our current estimate is that the UK's borrowing requirement will still be below the G7 average as a percentage of GDP at the end of the crisis period.
The noble Lord, Lord Skidelsky, asked why we were not simply going back to the old rules from which we had departed. He asked what was happening to the old rules. The noble Lord, Lord Newby, has now christened a new set of rules the Skidelsky rules, which one must look at very carefully because, as I listened to the noble Lord, they had a certain appeal. The old fiscal rules were right for the time, and the Government met them. However, with unprecedented levels of economic uncertainty, the temporary operating rule was right for its time, too. Now the priority is to get public finances on a sustainable path and undertake fiscal consolidation.
I have already answered the question from the noble Lord, Lord Lea, about the operation of the automatic stabilisers. The noble Lords, Lord Hodgson, Lord Lawson of Blaby and Lord MacGregor of Pulham Market, and the noble Baroness, Lady Noakes, all observed that the law was not enforceable and did not have consequences. The most powerful consequence is the one of embarrassment for being called to account in Parliament, in a context in which Parliament will have much greater responsibility for fiscal matters than in the past.
The noble Lord, Lord Hodgson, talked about whole of government accounts. As I said, the Government are apparently committed to the principle of transparency, in which this Bill plays a part, and they fully support the publication of whole of government accounts. These will provide Parliament with enhanced information about all government income, expenditure, liabilities and cash flow. Something that I did not know but can now advise the House is that whole of government accounts will be published for 2009-10 once central Government have moved to the International Financial Reporting Standards and once the necessary legislation is in place. I hope that that gives some comfort to the noble Lords, Lord Hodgson and Lord Newby.
The noble Lord, Lord Ryder of Wensum, in a somewhat political speech—in which I thought he was doing extremely well until he was knocked off balance by my noble friend Lord Peston, although he very quickly regained that balance—asked why the old fiscal rules were not in legislation. The old fiscal rules are effectively embodied within these rules. Their abandonment was on a temporary basis, which is not to say that at some point my right honourable friend the Chancellor of the Exchequer might not seek to refer to them formally in his policy thinking.
I am afraid that the noble Lord, Lord Northbrook, was simply incorrect in suggesting that Nigeria is the only other country with a Fiscal Responsibility Bill. I am told that a tax break was enshrined in the German constitution in June 2009 and that a similar debt break is in place in Switzerland. In the US, the legislative fiscal framework between 1990 and 2002 provided by the Budget Enforcement Act—a piece of legislation to which I think the noble Lord referred by name—is credited with contributing to successful fiscal consolidation over that period.
Perhaps I may interrupt the noble Lord before he finishes his very full answers to everyone who has spoken, for which we are very grateful. He said a little while back that, although our deficit in the coming year is projected by the OECD to be the highest of all 28 countries, by the end of the fiscal consolidation, we will be below the average. On what basis does he make that assumption? Is he assuming that no other country is going to undertake fiscal consolidation? If so, that is totally unreasonable.
Noble Lords would not expect me to come to Parliament on the basis of number work that I had done on my own. They would be suspicious that I had started with the answer I sought and that I had done the arithmetic to arrive at that answer. The information that I gave was of course based on IMF statistics and projections.
The noble Lord, Lord Northbrook, also mentioned Mr Willem Buiter, who is now an economist with Citibank. The noble Lord regularly mentions Mr Michael Saunders, although it looks as though he is going to have to patronise some other banks in addition to Citibank for his sources of information. I think that we have already set out that Mr Willem Buiter—I almost referred to him as “the noble Lord” but perhaps he will become a noble Lord in due course—is mistaken in some of his thinking about international practice.
I am not going to be drawn into how we justify expenditure on care at home, the legislation for which is currently going through Parliament. However, I can say that we regard it as a priority and as worth while. All those who benefit will appreciate the Government’s commitment to helping those who need care at home and will have the comfort of being in their homes. They will also note that the Conservative Party is very opposed to that.
In closing, I want to come back to the point that I was proposing to make to the noble Baroness. I continue to wrestle with the exact positioning of current Conservative fiscal thinking. Certainly, at the time of the Manchester party conference we were being prepared for an age of austerity. That then changed, with the Conservatives saying, “We don’t have to do very much and we shouldn’t move too soon. We might just make a start”, but then last week the noble Baroness told us that we should prepare ourselves for an age of austerity. I also heard her say that she could not possibly be precise about where cuts would be made because she had to wait until they had seen the books. However, Members of the Opposition are perfectly able to submit Written Questions or freedom of information inquiries to find out what they need to see in the books. Speaking as someone who has come relatively late in life to this job, I have to say that one does not discover many things in the books that are not already in the public domain, and some of them do not get into the public domain through the official channels.
I suggest to the noble Baroness that she should not hold back from sharing her thinking with the House. As one of her colleagues said—it may have been the noble Lord, Lord Northbrook—the IFS is suggesting that cuts for non-protected programmes will need to be in the region of 20 per cent or so. Of course, the Conservative Party has said that it is going to go further and faster. I should like the noble Baroness to tell us whether that is true. Is the Conservative Party committed to an early cut in public expenditure on the scale of cutting one-fifth of all public expenditure? It is a very simple question. In this House I have always tried to give straightforward answers to questions. If I have not been able to do so, I hope that I have been punctilious in writing to Peers with explanations and answers to their questions. Therefore, I put a very simple question to the noble Baroness: is the Conservative Party so committed? I know that she might need briefing—indeed, the noble Lord, Lord Northbrook, was briefing her just now and I am sure she was very grateful for his contribution—because last week she was very wobbly in answering a question from the noble Lord, Lord Dykes, on whether the Conservative Party would never join the euro. I think that that is where she started off in her reply. She then backed off from that position and qualified it a little, saying that she had always been told never to use the word “never”. However, Mr Cameron is now saying that if he is Prime Minister we will never join the euro. Perhaps she could clarify that point as well.
What else can I say? I think that I have covered just about everything. The noble Viscount, Lord Eccles, has given me the Google index of credibility. He says that the number of hits on the Code for Fiscal Stability suggests that not many people are reading it. That is probably evidence of the fact that they think it is so universally wise, profoundly significant and important that they do not need to read it, but I shall be using the Google index of credibility to establish how credible Conservative Party policies are in a number of areas.
The noble Lord, Lord Ryder of Wensum, talked about a gilt strike. I am afraid that that is absolute nonsense. In fact, we have just had another auction, which was excellently covered, and gilts continue to be funded at less than 4 per cent over a 10-year maturity. That is extremely attractive by comparison with the past. Certainly when the noble Lord was himself a Minister, such funding was taking place in the mid-teens, and I can see no evidence of a gilt strike. The noble Lord also referred to a Buster Keaton film, suggesting that “The Railroader” was appropriate. With this important piece of legislation, I should prefer to say that the Buster Keaton film to which I would look is “The Navigator”. Once again, our inspired leader, the right honourable Gordon Brown, is navigating us through troubled waters on a path to fiscal sustainability, consolidation, safe and secure national financing, and prosperity for ever more.
My Lords, I thank my noble friends for their support in this debate. I was going to say that I was glad that so many of them were kind to the Minister, as I tried to lead them to be at the beginning of my speech. However, having listened to the last five or 10 minutes of his speech, I am not quite so sure that they should have been. Of course, while my noble friends were kind to him, they were quite properly very unkind about the Bill. Many of them emphasised the importance of credibility and confidence in markets, in which the UK will need to fund the massive deficit that we face. They agreed that markets have paid, and will pay, no attention whatever to this Bill.
Several of my noble friends, led by my noble friend Lord Lawson, emphasised the need to start to tackle the deficit earlier and more forcefully than this Bill appears to require. That makes this Bill of marginal interest to us, but we still object to it on the grounds that it is damaging and disreputable, to use the words of my noble friend Lord Hodgson.
The noble Lord, Lord Myners, tried to tempt me to talk about our approach to what is now coyly referred to as fiscal consolidation. I shall follow the lead of my noble friend Lord Lawson and say, “I’ll show you mine if you show me yours”. The fact is that, for all the talk of glide paths, the Government have not set out what they will do. All of this is beyond the scope of today’s debate, as is our position on the euro. However, I thoroughly endorse Mr Cameron’s views on whether and when we should join the euro.
My purpose in tabling my amendment today was to draw attention to the lack of parliamentary scrutiny of this dreadful Bill. The noble Lord, Lord Desai, suggested that perhaps not scrutinising Clauses 2 to 6 did not matter, but Clauses 2, 3 and 4 at least should have been scrutinised and the supposed duties, reports and accountability—
My Lords, does the noble Baroness recall that, at the beginning of our debate, the Lord Speaker read a passage from the Companion about what we cannot do? I thought that she said that we must say nothing that would implicitly criticise the Speaker in the other place or criticise the way in which the other place conducted its business. The noble Baroness seems to be going down the path of criticising the way in which the other place conducted its business. I am not sure who can read out the relevant bit of the Companion that was read out earlier. I mention this partly because I had intended to criticise the other place but, the moment I heard what the Lord Speaker had to say, I thought that I must not do it. I am now worried about the path that we are on, but I am not sure who is in a position to advise us on this.
My Lords, perhaps I can help. When I spoke earlier, I was at pains to point out the lack of scrutiny that the Bill received in another place; I was at pains not to criticise the other place but to criticise the Government for the way in which they used the procedures of the other place to achieve the result that this Bill had virtually no scrutiny. I stick to that. I do not believe that I have departed from that in these concluding remarks. If I have, that was wrong and was not what I intended. I think that I have made plain what I intended. That was my purpose and I believe that the clauses that were not scrutinised—they deal with duties, reports and accountability, which in statutory terms is a nonsense—should have been exposed to scrutiny. In the normal case, your Lordships’ House can remedy insufficient scrutiny in another place with its own careful deliberations but, of course, we cannot do that on a money Bill. I hope that today’s debate has illustrated the desirability of full scrutiny of at least one House of Parliament in the context of good, constitutional government. If it has, I have achieved my purpose. On that basis, I beg leave to withdraw my amendment.
Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.