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Finance Bill

Much—indeed, almost all—of the comment in the press at the time of the Budget, and much of this debate, has been about the assumptions and forecasts it contained. I wish to respond to some of that comment and I start from the premise that forecasting is more an art than a science. I know that econometrics is the place to be at the moment, and many different mathematical formulae are used, but the reality is that art plays a much larger part than science. That is particularly the case at present, because we live in a period of exceptional uncertainty. If I may comment on a point that was made earlier, we are no longer in a period characterised by the chairman of the Federal Reserve as the "great moderation". We all remember those times—they lasted for quite a long period—when the so-called fluctuations in the trade cycle were reduced and when it was thought that economic management of the economy was more effective than it is. All that was cast aside completely in 2007, when we had the unprecedented external shock from the sub-prime fiasco in the USA. The first thing that we must be clear about is that the recession that this Budget reflects is international in both scale and origin. My first question on the Budget projections is how far into the future is it reasonable for a Budget to forecast. Indeed, the hon. Member for Taunton (Mr. Browne) commented that Budget books occasionally give long-term public expenditure projections. Without wishing to hurt the feelings of all the economists who crunch the numbers in the Treasury, I submit that some of the projections that go more than two or three years into the future are almost worthless. Indeed, I shall go on to talk about whether it is appropriate to forecast two years ahead. Although that was done in the Budget—and it has received a lot of criticism—very few of all the other forecasters, including the IMF, forecast for that period.