Autumn Statement 2012
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House of Commons Treasury Committee Autumn Statement 2012 Seventh Report of Session 2012–13 Volume II Oral and written evidence Ordered by the House of Commons to be printed 22 January 2013 HC 818–II Published on 30 January 2013 by authority of the House of Commons London: The Stationery Office Limited £12.00 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies. Current membership Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr Pat McFadden MP (Labour, Wolverhampton South West) Mr George Mudie MP (Labour, Leeds East) Mr Brooks Newmark MP (Conservative, Braintree) Jesse Norman MP (Conservative, Hereford and South Herefordshire) Teresa Pearce MP (Labour, Erith and Thamesmead) David Ruffley MP, (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Chris Stanton (Clerk), Lydia Menzies (Second Clerk), Jay Sheth and Adam Wales (Senior Economists), Hansen Lu, Matthew Manning (on secondment from the FSA) and Duncan Richmond (on secondment from the NAO) (Committee Specialists), Steven Price (Senior Committee Assistant), Jo Cunningham and Lisa Stead (Committee Assistants) and James Abbott (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected] Autumn Statement 2012 5 Witnesses Tuesday 11 December 2012 Page Robert Chote, Chairman, Steve Nickell CBE and Graham Parker CBE, Members of the Budget Responsibility Committee, Office for Budget Responsibility Ev 1 Wednesday 12 December 2012 Simon Hayes, Chief Economist, Barclays Capital, Simon Wells, Chief UK Economist, HSBC, and Paul Mortimer-Lee, Global Head, Market Economics, BNP Paribas Ev 16 Lee Hopley, Chief Economist, EEF, and Professor Philip Booth, Editorial and Programme Director, Institute of Economic Affairs Ev 22 Paul Johnson, Director, and Carl Emmerson, Deputy Director, Institute for Fiscal Studies Ev 28 Dr Mark Hellowell, Lecturer, School of Social and Political Science, University of Edinburgh, and Professor Dieter Helm CBE, University of Oxford Ev 33 Thursday 13 December 2012 Rt Hon George Osborne MP, Chancellor of the Exchequer, and James Bowler, Director for Strategy, Planning and Budget, HM Treasury Ev 38 List of written evidence 1 Paul Mortimer-Lee, Global Head, Market Economics, BNP Paribas Ev 54 2 Professor Dieter Helm, Oxford University Ev 56 3 Rt Hon George Osborne MP, Chancellor of the Exchequer, HM Treasury Ev 57 cobber Pack: U PL: COE1 [SO] Processed: [29-01-2013 13:10] Job: 026033 Unit: PG01 Source: /MILES/PKU/INPUT/026033/026033_o001_th_TC 11-12-12 corrected.xml Treasury Committee: Evidence Ev 1 Oral evidence Taken before the Treasury Committee on Tuesday 11 December 2012 Members present: Mr Andrew Tyrie (Chair) Mark Garnier Mr Brooks Newmark Andrea Leadsom Jesse Norman Mr Andy Love Teresa Pearce Mr Pat McFadden Mr David Ruffley John Mann John Thurso Mr George Mudie ________________ Examination of Witnesses Witnesses: Robert Chote, Chairman, Office for Budget Responsibility, Steve Nickell CBE and Graham Parker CBE, Members, Office for Budget Responsibility Committee, gave evidence. Q1 Chair: I am sorry to keep you waiting for a few Robert Chote: The problem with using the average of moments. We had a bit of private business to get outside forecasters, which I recommended back in through. Can I begin by asking you whether the 2009— Treasury in any way, directly or indirectly, has sought Chair: That is why I raised it. to or succeeded in influencing this forecast in ways Robert Chote: You will recall we discussed it when you would have considered inappropriate? you took evidence on the structure of the OBR. The Robert Chote: No. difficulty that has become more apparent to me Chair: The purpose of creating the OBR was to give subsequently is that we need a particular type of the forecasts a stamp of independence. A second economic forecast to produce a bottom-up fiscal purpose was to give them a perhaps lower place in forecast that really is not out there to pluck off the the firmament of credibility, that is people accepting shelf. For example, you want something that has a realism about the limits of forecasting. How far do much more detailed breakdown of different categories you think you have got in educating the public that on the income and expenditure side of GDP than most forecasting is a pretty haphazard business? other forecasters would need for their purposes. You Robert Chote: I think the cynical and obvious answer need something that extends over five years, you need to that is, given the outturns for growth relative to to take a view on potential output and the output gap what we said, we have probably done quite a good over five years, and many people don’t. The other job in demonstrating the limitations of economic thing is that you need to be able to take into account forecasting. The key thing is to underline the the impact that measures will have on the fiscal uncertainties that are around any forecast and for us forecast and that is quite hard to do if you are simply to explain that nobody should bet the farm on a trying to bolt it on to a table you have plucked out of particular path being the definite outcome and, a compilation of independent forecasts. therefore, to explain how much it matters to the fiscal Chair: Those are two very good points. We are going targets that we are ultimately here to police if the to be coming on to both of those in various ways in a forecast turns out to be different in any one of a few moments. number of ways reflected in our sensitivities and scenarios. Q4 Teresa Pearce: Your GDP forecast doesn’t take into account the effect of the Government’s supply Q2 Chair: Do you think that when the dust settles side reforms. Why not? and we have another year or two of the Chote era at Robert Chote: In what sense doesn’t it take them the OBR we are going to come to the conclusion that into account? on the key variables, output, inflation and so on, your Teresa Pearce: You don’t include it in your forecast is any better than the average of outside modelling. Is that right? forecasters? Robert Chote: We make an assessment of how we Robert Chote: I think the key point is the key think potential GDP is likely to evolve over the five- variables and the reason we have been created is not year period. That is taking into account where data things like growth and inflation. It is the budget has been in the past and our assessment of any likely deficit, public spending and tax revenues. That is what impact the policy measures are going to have on that. we are here to add value for because we don’t have Judging at the best of times how potential GDP is any additional information to that anybody else likely to evolve is a pretty difficult task and you have producing a macroeconomic forecast has. seen the scale of the revisions that have happened subsequently to that. The various measures that we Q3 Chair: So we might as well use the average of have taken into account in successive budgets and outside forecasters? autumn statements generally haven’t been large cobber Pack: U PL: COE1 [E] Processed: [29-01-2013 13:10] Job: 026033 Unit: PG01 Source: /MILES/PKU/INPUT/026033/026033_o001_th_TC 11-12-12 corrected.xml Ev 2 Treasury Committee: Evidence 11 December 2012 Robert Chote, Steve Nickell CBE and Graham Parker CBE enough to take us away from the view that over the Financial Stability Report says that the debt to income long term there isn’t much better that we can draw ratio has dropped from its peak of 170% in 2008 down back on than to assume the potential GDP, the to 149%, so household balance sheets are sort of underlying supply potential of the economy is going improving. Then there is speculation from the Bank to grow in the future in line with its performance in of England’s Inflation Report that the Funding for the past. Making a very small and precisely calibrated Lending Scheme should ease credit availability for change to a number around which there is such households. Do you anticipate in your forecasts that uncertainty doesn’t seem to make a great deal of domestic consumption will increase? Is that going to sense. improve growth levels in the economy and to what extent to you think that is likely? Q5 Teresa Pearce: Isn’t the point of a forecast to Robert Chote: I will ask Steve to say a little bit about look at the uncertainties and make a forecast? If what how we think about debt to income ratios and how you are saying is it is hard to take that into account useful that is as a guide to things.