Budget Responsibility and National Audit Bill [HL]

I am grateful to the noble Lord, Lord Eatwell, for his support for government Amendment 9, but let me say a few things in respect of Amendments 8 and 10 because my noble friend Lord Higgins has raised important issues. I agree with the spirit of the amendments in both cases, and I shall try to do justice to the points he has raised by explaining how I think the matters are or should be dealt with. Amendment 8 concerns the question of economic and fiscal forecasts. On fiscal forecasts, a comparison is actually not possible because the Bank does not produce such a forecast. Rather, it incorporates the official fiscal forecast now produced by the OBR into its own economic forecasts, which reflects the expertise within the OBR and the information that the office as opposed to the Bank has access to. So that is dealt with because there is no comparison to be made. Of course a comparison can be made of economic forecasts and, although I would not express it in quite the terms of the noble Lord, Lord Eatwell, yes, there may be differences—we cannot get away from that. The important point is that comparisons are made, and this is exactly what the OBR is doing. It set out a comparison in its economic and fiscal outlook, which it published in November 2010, and table 3.8 on page 69 of that document clearly sets out the Bank of England’s economic forecast. The OBR has gone further than that because it has also set out its forecast against other key forecasters such as the IMF, the OECD, the EC and the NIESR. So there are those and other opportunities for the OBR’s forecast to be compared, including in the annual report on forecast accuracy and in the external reviews we discussed earlier. There are provisions in the Bill to support the comparison analysis that is already being made in the OBR’s publications. Therefore, in respect of the economic forecasts, while I agree with its underlying principle, the amendment is not necessary. Amendment 10 provides for the OBR to report on the output gap and the timing of the cycle. On the output gap, the current fiscal mandate is based on the cyclically adjusted current balance and, therefore, in order to assess the likelihood of meeting the mandate, the OBR has to compute an estimate of the output gap in order to calculate the structural deficit. It has produced a forecast for the output gap in all three of the official forecasts it has produced to date and also much supplementary analysis—eight pages of it in the November report. There is a provision in the charter concerning what data series the OBR should produce. The draft charter states that the OBR must produce: "““An analysis of the impact of the economic cycle on the key fiscal aggregates, including estimates of the cyclically-adjusted position””." To fulfil this requirement, the OBR must produce an estimate and forecast for the output gap if the fiscal mandate changes. That is already covered. On the timing of the economic cycle, the noble Lord, Lord Eatwell, and my noble friend Lord Newby have correctly pointed out that we are now in a different position in regard to the economic cycle and its link to the fiscal rules. Under the previous Administration, the timing of the economic cycle was critical to the fiscal rules. It was a judgment under the control of the Chancellor and the controversy caused by changing the date of the cycle in mid-2000 is a perfect illustration of why the OBR has been established. Under the new fiscal mandate, the timing of the economic cycle no longer fundamentally underpins the fiscal rules. This reflects international best practice, where it is acknowledged that judging the end of the fiscal cycle, possibly several years into the future, is extremely difficult and an insufficient basis on which to design rules. Nevertheless, and despite this, it will be clear from the OBR’s forecast for the economy what its forecast for the economic cycle is over the next five years. One will be able to tell if the OBR expects the economy to move from recession to growth and vice versa. Should the timing of the economic cycle be of particular interest again, I would expect the OBR to dedicate a large amount of analysis to it. The provisions which support external scrutiny will ensure that OBR analysis is consistent with international best practice, but at the moment, and in stark contrast to the previous Administration, this is a subsidiary point. While I very much agree with the spirit of the amendment, the OBR is already covering these matters. They are dealt with in the charter and it is not appropriate for legislation to go down to this level of detail. I ask my noble friend to consider withdrawing his amendment.