Charter for Budget Responsibility and Welfare Cap — House of Commons, 2022-01-10
Topic: Macroeconomics
Richard Quentin Fuller (Conservative, Centre-right): One of the primary reasons a Parliament was established was to protect property owners from the excessive claims of the state, and over the last quarter century this is a duty that successive Parliaments have spectacularly failed to fulfil. Encouraged by benign trends and with the irrepressible pressure of the media to spend more and take on more responsibilities, while hampered by a globalisation of capital that has moved the ownership of property offshore and therefore made it harder to tax, the political class in this country and in this Parliament appears to have lost any sense of the responsibility to pay for what they spend As speakers have said in this debate already, the UK now has the highest peacetime tax burden since world war two. The UK Government have direct debts of £2.6 trillion. In addition, there are unfunded pension liabilities and other off-balance sheet liabilities that take that total closer to £4.6 trillion, yet speaker after speaker, even in this debate, says, "Spend more, spend more." Since 2009, the Bank of England has been printing money, and notwithstanding the very clear points made by my right hon. Friend the Member for Wokingham (John Redwood), that £895 billion of quantitative easing is a potential debasement of the currency. Even though it may have been moving interest from one hand to the other hand between the Treasury and the Bank of England, there is a long-term understanding from capital markets that if Governments and sovereigns are quite happily able to print their own money, those who wish to lend money in the future will ask for a higher interest rate to cover that risk. UK Governments over the last 30 years have benefited from at least a 30-year decline in the yield curve, and perhaps we have grown used to an expectation that a lender will, in real terms, actually pay for the privilege of funding public expenditure To me, this is a very precarious financial situation for the UK Government, so what of our prospects? The right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Glasgow Central (Alison Thewliss) talked about economic growth somehow being the magic cure, saying that the United Kingdom was doing uniquely poorly and that they had a special plan. But the truth of the matter is that economic growth across all the developed OECD countries has declined from an average of over 3% per annum in the 1970s and ’80s to an average of below 2% in the period since 2000. The relative position of the UK to the OECD is better now than it was in the ’70s and ’80s, so the argument that the UK Government are missing something in their growth strategy that other countries have found is without foundation. I have heard the right hon. Member for Wolverhampton South East make this point before, and it is a neat point. That is why I went to check the figures, and I would encourage him to do likewise Geopolitical risks are growing, partly driven by a 50-year strategy to integrate China economically and politically into the democratic system. That is now at least in question, if not in reverse. We should think very carefully about the fact that disengaging China and its productive capacity from the global trading system risks adding to inflationary pressures. Demand from sovereign borrowers among all developed countries has risen from 70% of GDP a few years ago to over 200% of GDP—not just the UK but all developed countries. That is a level not seen since world war two, and it puts pressure on international global liquidity that increases expectations that the 30-year decline in yield curves may well go into reverse I am yet to see any evidence that all of us politicians have really learned how to stand up to the constant demands to spend more and involve the Government more as the answer to every single question that the media put to us. I would only hope that we pay more attention to those who have to pay for that rather than to getting the credit for saying that we can solve every problem Greater risks, rising interest rates, higher inflation expectations and a political class that has not really focused on the need to pay for things are the context in which we have the Government’s charter for budget responsibility. It is a welcome addition, because it makes changes that start to confront some of those pressures. There is an additional focus on assessing the affordability of public debt. It is rather a surprise that we did not have that as a focus previously. It has also added a cap on investment expenditure of 3% of GDP. I take the good point made by my right hon. Friend the Member for Wokingham that that sounds a bit reminiscent of the European Union plans. However, there does seem to be a problem of Departments bidding to the Treasury based on expectations of the rate of return they are going to make and the Treasury then having to stand back and be a barrier against all those demands on the public purse. The cap on investment expenditure is a prudent addition to make The charter adds a new key indicator of public sector net worth. I encourage the Minister to move very quickly to let us have the details on that. New Zealand put this together in the last millennium, so it cannot be that hard to do, although I recognise that it can be misleading as well as insightful One thing that is not in the charter is the consequences for breaking fiscal rules. This point was made by the hon. Member for Glasgow Central. It is good to write certain fiscal rules but it is also good for there to be consequences on behalf of taxpayers for Governments who do not meet those rules, and that should be more than just a new rewriting of the rules Finally, I want to make a point about long-term trends in the Bank of England. Paragraph 3.20 of the document says: "The Treasury’s objective in relation to debt management policy is…to minimise, over the long term, the costs of meeting the government’s financing needs, taking into account risk, while ensuring that debt management policy is consistent with the aims of monetary policy." I like the phrase "over the long term", which hides all sorts of problems. I thought I would try to find the long term, so I turned to the January 2020 working paper by the Bank of England, "Eight centuries of global real interest rates," to see what it might tell us about the Bank’s thinking. I am concerned that the Bank of England has had a view about inflation rates that is a little too benign. The working paper says: "Against their long term context, currently depressed sovereign real rates are in fact converging ‘back to historical trend’…real rates could soon enter permanently negative territory." This is the big question I would like the Minister to answer: is it the expectation that we are living, for the foreseeable future, in an era in which we anticipate that interest rates, in real terms, will be negative and declining? Or will that be the long-term trend, but subject to major fluctuations in the short term? People’s livelihoods depend much more crucially on that expectation than on other things we might debate in the near future.