Fiscal Responsibility Bill

I think that it was Francis Bacon who talked about dreams and predictions being subjects only for a chat by the fireside, so I do not want to get into the differences between the two. What I do want to say is that forecasting is not an exact science; it is particularly prone to error when there are major global shocks, as we have seen over the past couple of years, so it is not surprising that the Treasury's forecasts, along with all other forecasts, have not proved accurate. As the Chancellor said, the Government are cautious but confident about growth, and that assessment of growth has been used when judging the appropriate pace by which to reduce the deficit. We have discussed the appropriate pace before, and the Government want to ensure that the recovery is locked in. I believe that the economy is growing as we speak, but we do not want to jeopardise it. If we take action too early, we could put in danger the recovery that I believe is taking place this year. If growth proves stronger than we are currently forecasting, the priority should be a further reduction in structural borrowing. The Bill allows for that by setting fiscal ceilings, not floors, and it sets targets that the Government judge appropriate, because it is deliberately drafted to allow for overachievement. The ceilings are binding and designed to provide certainty that the Government will deliver their consolidation plans. It is worth noting that, subject to making progress on reducing borrowing every year, there is flexibility in the profile over which the deficit is halved by 2013-14. As I said earlier, there is the flexibility to accommodate lower growth and the greater impact of the automatic stabilisers so long as progress is made on reducing borrowing. It is important to recognise that. The issue is not just about economic growth. The hon. Member for Taunton pointed out that significant shocks to the public finances could come from a natural disaster or other actions, and my general point is that, in extremis, the Government would have to come back to Parliament if it were necessary to amend the targets in the Bill. However, the Bill has been designed so that, rightly, the duties in clause 1 can be changed only through new primary legislation. That is a higher hurdle than the procedure in his amendment; and our approach allows for greater parliamentary scrutiny than his amendment, which would make it a lot easier to disapply the duties. We think it right and proper that new primary legislation should be required in order to divert from the course set out in the Bill. The difficulty and seriousness of doing that should underline the Government's commitment to meeting the Bill's targets. I agree with the hon. Member for Taunton that it is important to consider alternative circumstances and scenarios. However, his amendment would make it too easy to change the targets when it is important that they are seen by everyone to be hard targets that could be changed only by going through the full parliamentary procedures required for new primary legislation. Amendment 5 is the first of three amendments that would require the Treasury to produce a report before commencing certain parts of the Bill. It seeks to impose on the Treasury a requirement to lay before the House a review of the accuracy of recent forecasts. I understand the comments that have been made by the hon. Member for Taunton—I have referred to some of them—and by the hon. Member for South-West Hertfordshire. I accept, of course, that it is important to account for past forecast differences and to explain them in an open and transparent way; that is why, since 2002, the Treasury has published an end-of-year fiscal report. That report is underpinned by the provisions of the code for fiscal stability, which require the Government to provide an indication of past forecast errors for public sector net borrowing. The report provides retrospective reporting and analysis of fiscal issues, and it builds on the information that is already available and published in the Budget and the pre-Budget report. It is a comprehensive analysis of forecast performance, and many fiscal commentators find it a useful source of information. In addition to the regular analysis of changes from forecast to outturn in the end-of-year fiscal report, each Budget and PBR analyses changes from forecast to forecast made at the previous fiscal event and provides a discussion of these developments. A lot of information is available out there on a regular basis. The Treasury reviews the accuracy of its forecasts, in the way that I have outlined, and its forecasts compare well with those of other forecasters such as the OECD, the International Monetary Fund and the European Council. The amendment is therefore unnecessary. New clause 1 would require the Treasury to carry out consultation on the Bill and to lay before Parliament a summary of the responses. I do not believe that that is necessary. We have already set out and explained our consolidation plans on more than one occasion. At Budget 2009, we clearly set out fiscal plans to secure sound public finances. At that time, the fiscal judgment was to more than halve borrowing to 5.5 per cent. of GDP in 2013-14. That judgment was confirmed in the PBR forecast, and through powers in the Bill it has been put into legislation. The path for consolidation has remained stable, and it has been public for some time. There has been significant discussion of these plans by financial commentators; and indeed, many discussions have been held in this House. A range of views have already been expressed. We have heard lengthy quotes from the hon. Member for South-West Hertfordshire and from a wide range of stakeholders. There are already mechanisms in place that allow for the policy to be scrutinised. In particular, after each Budget and PBR the Treasury Committee takes evidence, not only from Treasury Ministers and officials but from expert witnesses. The Treasury also receives a large number of representations in advance of each PBR and Budget. Introducing a late-stage consultation process and similar requirements would risk creating unnecessary uncertainty about plans that have already been extensively discussed and are in the public domain.