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Fiscal Responsibility Bill

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 criteria 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 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.