Public Finance Forecasts

Oral Answers to Questions — Treasury – in the House of Commons at 10:30 am on 26th January 2006.

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Photo of James Duddridge James Duddridge Conservative, Rochford and Southend East 10:30 am, 26th January 2006

What measures he is taking to improve the reliability of public finance forecasts.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Since 1997, the Government have introduced a number of changes that have improved forecasting performance. They include the introduction of reasonable and cautious assumptions, independently audited by the National Audit Office. The Treasury regularly reviews its fiscal forecasting performance and publishes the results in end-of-year fiscal reports. They demonstrate that the Treasury's forecasts since 1997 compare well with those of major international organisations and of other EU member states.

Photo of James Duddridge James Duddridge Conservative, Rochford and Southend East

Does the Chief Secretary agree with the Treasury Committee, which said:

"It is important that official forecasts for tax receipts avoid any systemic bias either to exaggerate or underestimate revenue receipts, particularly towards the end of the economic cycle when forecasts are likely to come under particular scrutiny"?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I do agree with that. I have yet to have the advantage of reading all the Treasury Committee's report on the pre-Budget report. However, it was precisely in order to achieve that objective that we went to the trouble of introducing rules and a level of independence concerning the assumptions that underlie such forecasts.

Photo of Andrew Love Andrew Love Labour, Edmonton

Can my right hon. Friend explain to the House the impact on public finance forecasts of the possible introduction of a flat tax?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

As everybody knows, a flat tax would be significantly expensive in terms of the damage that it would do to this country. Some estimates suggest that if a flat tax were operating now, much-needed investment in public services would be reduced by as much as £7 billion for this year alone. I understand that the Conservatives, some of whom advocate a flat tax, are keeping their powder dry on this issue—or trying to—but it is hardly likely that it will remain dry for very much longer, given that they have put Michael Forsyth in charge of consideration of taxation. Of course, and as Scotland knows, he is the ultimate flat-tax—

Photo of Christopher Huhne Christopher Huhne Shadow Minister, Treasury

Thank you, Mr. Speaker, for that promotion. May I ask the Chief Secretary carefully to consider the course of action promoted by my hon. Friend Dr. Cable, who points out that the issuance of long-dated Government debt would of course improve the reliability of public finance forecasts? Does the Chief Secretary recognise that not increasing such issuance would constitute a substantial threat to the sustainability of pension funds?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

First, Mr. Speaker, without wishing to encourage your wrath, may I recognise that the hon. Gentleman is, I think, his party's shadow Chief Secretary to the Treasury and is in fact speaking from the Front Bench?

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

Order. I am going to make something plain. I called Chris Huhne as a Back Bencher, not as a spokesman. There is only one allocation to the Liberals.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I apologise, Mr. Speaker—I should have known better than to try to be that clever. I am glad to hear from Chris Huhne today. He is perhaps the only candidate for the leadership of his party whom we have not heard from this week, so I am pleased that he has had an opportunity to say something. In answer to the question, I assure the hon. Gentleman that the Government appreciate his point. That is exactly why my right hon. Friend the Chancellor has introduced appropriate mechanisms.

Photo of Andrew Miller Andrew Miller Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

But will my right hon. Friend explain the difference between the mechanisms in place now and those that applied on Black Wednesday? Could it be that my right hon. Friend the Chancellor has better special advisers?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

It is substantially because this Government have learned from the mistakes of the previous Administration. When we came to power in 1997, we set out principles for fiscal management and a code for fiscal stability. We have implemented significant changes that have helped to deliver improved forecasting performance. They include, for example, the publication of full fiscal projections at each PBR and Budget that are based on all Government decisions and circumstances that may have a material impact on the fiscal outlook, the audit of key assumptions—in particular the cautious assumptions for trend growth—and the publication of a full backward-looking analysis of forecasts in the end-of-year fiscal report.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

In 1995, the then shadow Chancellor called for an independent audit of the sustainability of public expenditure and the golden rule. What progress has the sixth Chief Secretary to the Treasury since this Government came to power made in that regard?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I have already set out the rules that we have introduced. What the hon. Gentleman is arguing for requires consideration of where the proper political accountability for such decisions lies. My right hon. Friend the Chancellor has made it clear that the Government are accountable for the decisions that they announce to this House.