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Fiscal Responsibility Bill

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, and 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.