The Financial Secretary to the Treasury (Lord Livermore) (Lab)

My Lords, at the general election, our manifesto made it clear that sustained economic growth is the only route to improving the prosperity of our country, raising living standards, and sustainably funding public services. That is why it is our central economic mission. On her first day in the Treasury, the Chancellor received new economic analysis from Treasury officials on the lost growth of the past 14 years. This analysis showed that, had the UK economy grown at the average rate of other OECD economies, it would now be over £140 billion larger. This could have brought an additional £58 billion in tax revenues in the last year alone—money that could have revitalised our schools, hospitals and other public services. We have therefore urgently begun the work to deliver on the mandate for change delivered by the British people at the election to fix the foundations of our economy, rebuild Britain and make every part of our country better off. Our approach to growth rests on three pillars: stability, investment and reform. We have set out ambitious reforms, most importantly to the planning system, the single biggest obstacle to our country’s economic success. We have ended the ban on onshore wind and set out reforms to the skills system. With regard to investment, we have established the national wealth fund, committed to an industrial strategy council, and begun the creation of GB Energy. But the first, and most critical pillar, is economic stability—it is the rock on which all else must be built and the essential precondition for growth. Over the last 14 years, with five Prime Ministers and seven Chancellors, instability has deterred investment, undermined family finances and, most importantly, held back growth. Many of the crises we faced during that time were of course global in origin—pandemic, war and an energy shock—but other countries faced those same shocks. The reason why we in the UK were hit harder than other comparable countries can be explained only by the choices made by the previous Government here at home: austerity, which choked off investment; a rushed and ill-conceived Brexit deal; and the disastrous Liz Truss mini-Budget, which crashed the economy and sent mortgage rates spiralling. We believe that stability must begin with respect for our economic institutions. For much of the UK’s history, the strength of our economic institutions has bestowed credibility in international markets and underpinned our economic success. Politicians who seek to undermine those strengths, as we saw in the last Parliament, play a dangerous game. Under this Government, the Bank of England’s Monetary Policy Committee will continue to have operational independence in the pursuit of its primary objective of price stability, and, in line with our manifesto, we will support and strengthen the Office for Budget Responsibility, hence the Bill we are debating today. The OBR was, of course, introduced by a Conservative Chancellor to deal with a lack of independence in forecasting and the problems that had caused. It was a commendable move, bringing greater transparency and independent scrutiny to fiscal policy. But while the previous Government then went on to undermine it—Liz Truss notoriously saying that she wanted to “see the back of the OBR”— the Labour Party continued to support it. Now, in government, we will strengthen it. This Bill therefore fulfils a simple but important step to help restore economic stability: it brings transparency and independent scrutiny into law by ensuring that every fiscal event that makes significant changes to taxation or spending will be subject to an independent report from the OBR. In doing so, it delivers on a manifesto commitment. Let us be clear about why this Bill is needed. While the existing fiscal framework requires at least two OBR forecasts a year, there is currently no requirement on the Treasury to subject announcements on all fiscally significant measures to independent OBR scrutiny. In effect, that means there are times when the Government can make fiscally significant announcements while opting out of both transparency and scrutiny. This was a key factor in the disastrous Liz Truss mini-Budget, which did so much damage to our economy and to households, who are still paying the price for it today. The previous Government knew the measures they were taking were unfunded and unaffordable, but as they were not bound to a forecast, they wilfully prevented one from taking place. This absence of scrutiny was a key factor in the adverse market reaction that followed. As the now shadow Chancellor said at the time, the mini-Budget damage was in part “caused by the lack of a forecast””.—[Official Report, Commons, 17/10/22; col. 395.] This cannot be allowed to happen again, so this Budget Responsibility Bill takes five important steps. First, the Bill requires that, before the Government make any fiscally significant announcement in Parliament, the Treasury must ask the OBR to prepare a report which takes that announcement into account. This builds on the existing process whereby the Chancellor commissions the OBR for an economic and fiscal forecast to accompany a fiscal event. It guarantees in law that, from now on, every fiscally significant change to tax and spending will be subject to independent scrutiny from the OBR. Secondly, the Bill gives the OBR new powers independently to decide to produce a report if it judges the measures in a fiscal event to be fiscally significant. If a fiscally significant announcement is made without the Treasury having previously requested a forecast from the OBR, the OBR is required to inform the Treasury Committee in the House of Commons of its opinion, and then prepare a report as soon as is practicable. Thirdly, the Bill defines a measure, or combination of measures, as “fiscally significant” if they exceed a specified percentage of GDP. The Charter for Budget Responsibility will then set the precise threshold. Setting the threshold in this way provides clarity for the OBR and external stakeholders about what constitutes a fiscally significant announcement and ensures that the Government can set it at the right level going forward, recognising economic conditions. The Treasury has published a draft of the updated charter. This notes that the threshold level will be set at announcements of at least 1% of nominal GDP in the latest OBR forecast. Fourthly, the Bill ensures that these arrangements do not apply to Governments responding to emergencies. The Bill does this by not applying in respect of measures that are intended to have a temporary effect and which are in response to an emergency. The charter will define “temporary” as any measure that is intended to end within two years. This recognises that it is sometimes reasonable, as it was during the pandemic, for the Government to act quickly and decisively without an OBR report, if that is needed in response to a shock. Of course, in emergencies it may be appropriate for the Chancellor to commission a forecast from the OBR to follow measures that need to be announced or implemented rapidly, and that would happen in the usual way. Alongside any such announcement, the Treasury will be required to make clear why it considers the situation to be an emergency. As set out in the updated charter, the OBR will have the discretion to prepare a report if it reasonably disagrees. Fifthly and finally, the Bill requires the Government to publish any updates to the detail of these arrangements, such as the threshold level at which they are triggered, in draft form at least 28 days before the updated charter is laid before the House of Commons. This is an essential safeguard in the Bill, preventing any future Government from choosing to ignore these arrangements by updating the charter without clear parliamentary consent. In line with this Bill, and as the Chancellor announced in July, she has commissioned a full forecast to accompany the Budget on 30 October, following the important principle that significant fiscal policy decisions should be made at a fiscal event and accompanied by an independent OBR report. In the Chancellor’s July Statement to Parliament, and in light of the scale of the overspend left by the previous Government, of which the OBR has confirmed it had not been informed, she also announced additional measures to strengthen the fiscal framework. These require the Treasury to share with the OBR its own assessment of immediate public spending pressures, enshrining that rule in the Charter for Budget Responsibility and establishing that spending reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for departments and to bring stability to our public finances. The changes introduced in this Bill are an important step in bringing much-needed stability to our economy. By empowering the OBR and ensuring that an independent report will accompany all fiscally significant announcements, it will improve transparency and accountability. Economic stability is central to economic growth—objectives that I hope will be shared across your Lordships’ House. I beg to move.