Budget Responsibility and National Audit Bill [HL]

My Lords, noble Lords will be aware from my remarks last time in Committee that I would not have set up an OBR. I regard it as a waste of public money, to be perfectly honest, but I entirely accept that we are going to have an OBR, since the Government have a majority in the other place and in practice seem to have a majority in your Lordships’ House. Therefore, I entirely agree with my noble friend Lord Eatwell that, if we are going to have such a body, we might as well make it a better one, rather than a worse one. Therefore, we have a duty to scrutinise the proposed legislation and come up with a variety of suggestions, in the hope of persuading the Minister that we could make a better fist of it than the Government have done so far. There I echo the remarks of my noble friend. On this group of amendments, I repeat something that I said last week. The OBR’s November economic and fiscal outlook report produced a series of forecasts that are not based on any recognisable or explicitly stated economic theory. This is forecasting without theory, which is slightly different from forecasting without a model, although the two are connected. I have found it difficult to discover from the economic and fiscal outlook report what assumptions the OBR has made—and, presumably, will continue to make—about the way in which the economy works. The central issue as far as serious economics is concerned is whether it is assuming that the economy is a self-adjusting mechanism that will come to a full employment equilibrium—the kind of assumption that what I regard as obsolete economics used to make—or whether it is taking for granted, first, that the economy will not come to an equilibrium at all or, secondly, that there are multi-equilibriums and it does not know where the economy is going to go. Whatever the case, many believe that, wherever it settles, it is most unlikely to settle at anywhere recognisable as a place of full employment. On a related matter about the facts and how seriously we should take the OBR forecasts as they are now, we have available, as the noble Lord, Lord Higgins, pointed out, the immensely helpful survey published by the Treasury of all the independent forecasts, to which I shall refer further on Report. I have analysed the independent forecasts statistically and it is interesting to note that, given the averages, standard deviations and the other statistical criteria, the forecasts of the OBR and the independent forecasters for 2010 and 2011 are much in step. However, it is extraordinarily interesting to note that the OBR forecast for 2012—that GDP will grow at 2.6 per cent per annum and will continue to grow at that kind of rate—is remarkably optimistic compared with the forecasts of the independent forecasters; it is statistically significantly different. The OBR has not discussed this matter, nor have outside commentators, but your Lordships—we shall return to this issue on Report—have to ask how the OBR has come up with this optimistic view. There was a time when the Conservative Party believed in the free market—those days seem long gone—and would have taken it for granted that, as the independent forecasters overwhelmingly are in the business of making money from accurate forecasting, they have a tremendous incentive to forecast accurately. Therefore, if one had a choice, one’s normal inclination would be to say, ““If you believe in the free market, you will choose the free market forecasts as opposed to the OBR’s forecasts””. We shall return later to the significant issue of the optimistic OBR forecast for 2012 against the rather more pessimistic forecasts of the independent forecasters. There may be two good explanations for the difference: first, many of the independent forecasters do not look that far ahead and we may have a biased sample of what we get from the Treasury; and, secondly, the OBR may have more information—for example, it may be better advised on government policy—than the independent forecasters. I am not saying that necessarily the OBR is mistaken; I am saying that the difference is, from any analytical and statistical point of view, noteworthy.