Budget Responsibility and National Audit Bill [HL]
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, since one or two noble Lords have joined us since the beginning of our sitting, perhaps I should repeat in essence what the noble Lord, Lord Eatwell, said about why we started rather later than anticipated. As he said, a request from the Opposition that Grand Committee should begin after the Statement in the Chamber to allow them to prepare a response was agreed to through the usual channels. I apologise if not all noble Lords were aware of the change of plan. I think that the Chief Whip announced it to the whole House following Oral Questions, but perhaps not everybody was there.
Perhaps I should go back to the Government’s overall approach to the charter as background to Amendments 1 to 4, because they all touch on the addition of economic objectives.
Lord Peston
I may implicitly be criticising my noble friend Lord Eatwell in saying that I was not under the impression that the charter was part of what we are dealing with here. There is no specific amendment at this point about it. I want to talk about the charter, but I do not want to be forced to do it now just because it has been mentioned. Apart from the fact that the economics of intergenerational fairness, as my noble friend will know as well as I do, are so complex that I doubt that we would make much progress with the matter here, I am a little disturbed that we are suddenly going off in a direction that does not relate to the three amendments before us.
Lord Newby
Just as a point of clarification for the noble Lord, Lord Eatwell, Clause 1(7) states:
“The Charter (or the modified Charter) does not come into force until it has been approved by a resolution of the House of Commons”,
so it has at least vestigial parliamentary scrutiny.
Lord Sassoon
I shall explain the way I see it and deal with the things that may be relevant this afternoon. We are talking about the charter, which we have produced in draft to aid scrutiny of the Bill. I hope that people will think that that is helpful. There were, quite rightly, demands to see it, which is why we produced it a week ahead of the Committee stage. It will be formally laid in another place following Royal Assent to the Bill, so it necessarily remains in draft until that point. We will listen carefully and, if there are issues that touch on the charter that could in our judgment improve the drafting, we will take them on board.
The relevance of the charter is how it fits with the architecture relating to the responsibilities of the OBR. We also have to remember that certain things in the charter do not directly relate to the fiscal mandate but are background information to it. I take the point that we should not get too far into discussions of irrelevant things, but intergenerational fairness is part of the fiscal objective that is in there as background information to the fiscal mandate, which comes in the subsequent paragraphs and links directly to the responsibilities of the Office for Budget Responsibility. The noble Lord, Lord Eatwell, is correct that intergenerational fairness can take on different definitions, but here we are using the term in a fiscal context to mean that future generations should not be burdened by deficits or the cost of servicing debts accumulated to pay for consumption by current or previous generations.
Lord Eatwell
That was the point that I was trying to make in a speech that I made in the House the other day. If there is a deficit and you are paying interest on that deficit, it sounds like a burden, but you are paying it to the people who lent you the money and they are predominantly other British citizens, so all that you are doing is transferring part of national product from one lot of British citizens—the taxpayers—to another lot of British citizens, the lenders. You are not actually creating an intergenerational transfer. An intergenerational transfer can be made, as the noble Lord, Lord Higgins, pointed out quite accurately, by changing the volume of investment in any one year, which changes the growth rate of the economy and affects future income per head. A fiscal measure alone is not an intergenerational transfer.
Lord Sassoon
I am grateful to the noble Lord, Lord Eatwell, for his explanation of how intergenerational transfers work. I am not sure what difference it makes to the analysis but, for better or worse, it is not the case that substantially all of the debt—he did not use that term—is held by UK citizens or bodies. The burden of debt that we have is well spread among international holders as well.
We should not get too far side-tracked. Intergenerational fairness is an important point, but the objectives for fiscal policy are, as I say, the background in the charter. People can see the context in which the critical elements of the Treasury mandate are set out in paragraphs 3.2 and 3.3 of the draft charter. Those are the two elements that bite particularly on the mandate of the OBR. The full objectives for fiscal policy include supporting and improving the effectiveness of monetary policy, which relates to the independent operations of the Monetary Policy Committee of the Bank of England. We must remember how the architecture fits together.
Let me say a bit more about the background to the charter. Its purpose is to improve the transparency of the fiscal policy framework and, within that, to include the guidance on the role of the OBR within the broader framework. The charter is concerned with fiscal policy and includes the Treasury mandate for fiscal policy. It was important to have that document for people to see ahead of this discussion. The fiscal policy framework is part of the Government’s overall approach to economic policy. Indeed, given the fiscal situation that the Government inherited, the coalition made it clear on its formation that reducing the budget deficit and setting public finances on a sustainable path to build confidence and to create the conditions for economic recovery were the overriding priority.
The noble Lord’s first amendment would require that the charter be expanded to relate to overall economic policy. Amendments 2 and 3 concern the addition of economic policy objectives, which means that we need to be clear about them. They are set out in the paper The Path to Strong, Sustainable and Balanced Growth, which was published today. To achieve the objective of delivering growth that is consistent with values of freedom, fairness and responsibility and to improve the well-being of the British people, the Government must employ all their macroeconomic and microeconomic policy tools and frameworks. I mentioned that monetary policy is operated by the independent Monetary Policy Committee of the Bank of England. That provides one set of tools that play a role in meeting the Government’s economic policy objectives.
It may be helpful to remind the Committee that the Bank of England Act 1998 provides:
“In relation to monetary policy, the objectives of the Bank of England shall be … to maintain price stability, and … subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.
I know that comments have been made about that, but it is probably not right this afternoon to go into the question of how all this works. The point is that the Bank of England Act does not set out the Government’s economic policy objectives. That is not what we are trying to inject—nor should we—into the legislation that governs the operation of the Office for Budget Responsibility.
Financial stability policies are similarly crucial to delivering the overall economic policy objective. The Government have taken steps to reform the financial stability framework, providing the Bank of England with control of macroprudential regulation and oversight of microprudential regulation. Also, microeconomic policies create the conditions for growth and they, too, are essential. Fiscal policy represents another crucial set of tools that the Government use to achieve the overall policy objectives. The charter is the place where, for the first time, we have a transparent exposition of the framework. However, the charter is not itself the framework. It replaces the code for fiscal stability, which was part of the previous fiscal framework. Replacing that code was recommended by the Treasury Select Committee. The code did not contain economic objectives. Therefore, the charter remains a document relating to fiscal policy and should not be expanded to contain overall economic objectives.
Lord Myners
Surely the “therefore” does not follow. Simply because the code did not include economic policy, it is wrong to say that therefore the charter should not. There is an opportunity, with the OBR and the charter, fundamentally to change the architecture with which we review and analyse the progress and success of the UK economy. I for one have warmly welcomed that from the opposition Benches, but the insertion of the word “therefore” in that sentence is simply illogical and misses the point of achieving the full potential that the OBR can offer.
Lord Sassoon
My Lords, we could add an awful lot of not directly relevant things into the charter and make a document of biblical proportions that discusses all sorts of things. The charter, unlike the previous Government’s code, explicitly sets out the Government’s fiscal policy objectives, so we have moved on. However, there is no point in moving on to all sorts of things that do not need to be in there, which is what the noble Lord, Lord Myners, suggests. Yes, we have moved on. The charter explicitly includes the Government’s means to achieve the fiscal objectives and the fiscal mandate. The coalition’s programme for government made it clear that accelerating the reduction of the deficit to ensure recovery was the greatest challenge. That all links through to the policy actions that we have taken. Through the creation of the independent Office for Budget Responsibility, credibility has been restored to the forecasts on which fiscal policy is based. I think that it is that that we all broadly welcomed at Second Reading and we must not lose sight of ensuring that the linkage between the Bill and the charter is focused on that single, critical objective.
The charter is a fiscal policy document, which helps to deliver the Government’s economic policy. To deliver the economic policy objective, the Government employ a wide range of macroeconomic and microeconomic policy tools and frameworks and, for those reasons, I believe that the amendments are not appropriate. The charter is not the Government’s economic policy framework but a document to underpin the work of the OBR, and that is all that it is proper to be. On that basis, I hope that noble Lords will withdraw the amendment and not press Amendments 2 and 3.
Amendment 4 is similar in nature to the other three amendments in that it concerns the fiscal mandate, which is the means for achieving the fiscal objectives. It is the Government’s quantified and specific target or fiscal rule, which will help to steer fiscal policy over the medium term. In setting a specific target, the mandate steers policy towards achieving the more general and strategic objectives that the Government have set for fiscal policy. The amendment suggests that the fiscal mandate is the key means of achieving the Government’s economic objectives. That is not the case. The ambitious and appropriate fiscal mandate that the Chancellor has set is crucial to delivering our fiscal objectives as a Government, but a much wider suite of economic policies, as I have explained, contributes to the Government’s economic objectives.
As I mentioned, the monetary policy framework, financial stability policy and microeconomic policy all contribute to the Government’s economic objectives. It is correct that the Government create an economic policy environment where all policy frameworks and tools contribute to their economic policy objective, yet the fiscal mandate should remain a fiscal target in a statutory fiscal charter and we should not stray from that.
There are a couple of other points that it is perhaps worth touching on before I conclude. On sustainability, the OBR will bring forward a sustainability analysis next summer, which will include,
“long-term projections for the public finances and an assessment of the public sector balance sheet”.
My noble friend Lord Higgins raised a question on that. It is referred to in paragraph 4.15 of the charter, so sustainability and the question of a balance sheet are absolutely in the work programme. Having explained the whole context for the charter within the overall fiscal framework, I hope that noble Lords will see fit not to press the amendments.
Lord Oakeshott of Seagrove Bay
My Lords, I listened at considerable length to the Minister reading out his brief in response to the amendments but I wondered whether, by any chance, he could do me the courtesy of answering my question, which I thought was fairly simple and clear. Why are we having just the word “intergenerational” with fairness? He has said that he does not want a Bible. I am suggesting that he might make it shorter, but why “intergenerational”? Why not any other sort of fairness? The document says that these are:
“The Treasury’s objectives for fiscal policy”.
This is a government document, so could the Minister please address the question that I raised?
Lord Sassoon
I was not meaning to be at all discourteous to my noble friend. I thought that I had explained that a lot of things could be set out in a full description of the policy frameworks but that the objective is to have a short encapsulation of fiscal policy objectives as a background to the specific mandate for fiscal policy. As I also said, this is of course a draft charter. I am listening to that and other comments that are being made on the charter. I absolutely confirm that. I fully understand that there are other aspects of fairness; indeed, I read out another formulation of the coalition policy approach to broader economic policy-making, so I am absolutely listening to my noble friend’s point. Fairness, without any specific reference to “intergenerational” or any other kind, is indeed central to the economic policy objectives of the coalition Government.
Lord Oakeshott of Seagrove Bay
I am glad that we are starting to get the matter addressed, but this is Committee stage and it is no good, if I may say so, taking a Civil Service attitude of, “We’ll think about anything that comes in”. This is Committee stage. I have made a proposal and suggested the document should be shorter, not longer. I know that it is a draft. I have said that, if the Minister cannot explain why intergenerational is the one bit of fairness that is picked out, why not leave out “intergenerational” and just say “fairness”? Could we actually engage here, please? What is the answer?
Lord Higgins
Before my noble friend replies to that, perhaps I may delay the Committee for a moment or two more. First, I apologise to the noble Lord, Lord Eatwell. His reference in the amendment to the lines in the Bill is correct. I was working on the original version of the Bill, which the Treasury has subsequently corrected. I just hope that the Public Bill Office has sorted out all my numbering; otherwise, I will have a lot of work ahead of me.
We should be extremely grateful to the Minister for providing the draft charter; otherwise, we would be relying purely on what is in the Bill, which leaves a large number of questions unanswered. Perhaps I may pursue the point raised by the Minister with regard to the fiscal mandate. There is no initial capital letter in “mandate” in the draft charter, which perhaps there should be. It states that the mandate is,
“a forward-looking target to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period”.
That is an extremely important statement. My problem is that there are shades of Gordon Brown, rather like Banquo’s ghost, in the reference to “cyclically-adjusted”, because Gordon Brown was a master at changing the dates of when the cycle began. If the mandate is to mean anything at all, we need to know when the Government think that the cycle began. If my noble friend cannot answer now, perhaps he might come back to it later.
Lord Sassoon
My Lords, at the risk of repeating myself, the Government’s broader economic policy objective is clear and includes the achievement of strong, sustainable and balanced growth that is more evenly shared across the country and between industries. That is consistent with values of broad freedom, fairness and responsibility. That is absolutely clear, I hope, as regards our broader economic policy objectives. However, as I have tried to explain, what we are talking about is the narrower context for the fiscal policy mandate. I am not personally very keen on too many capitalised terms, but I hear my noble friend’s plea for an initial capital for “mandate”—it is certainly a critically important part of the construct. I will take away the thought.
This is the first time that these fiscal policy objectives have been tabled. We are not debating the charter in the way that we are debating the Bill, because the charter is not part of the Bill itself. It is not a question of debating the precise words, therefore, but I take the point. There are many things within the broader definition of fairness that do not impinge directly and narrowly on the conduct of fiscal policy. Therefore, I am not sure that it would be right to talk about fairness in its full richness here, but I have certainly listened carefully.
As to the question of cyclical adjustment, the absolutely critical point is that cyclical adjustment is now done by the independent OBR; it is not done by Ministers, who could and did rewrite, on a regular basis, the start and end points of cycles. That is important and I am grateful to my noble friend for drawing attention to it.
Lord Sassoon
First of all, of course I take everything that is being raised this afternoon extremely seriously, but it would not be helpful to the Committee if I said, in some sort of Panglossian way and in approving terms, that I was equally sympathetic to all the points that were being raised. Points will be raised in this Committee to which I shall be more or less sympathetic and I shall try to give some indication of that, because I do not think that it is helpful to the Committee’s consideration, or to noble Lords at Report, if I just give an equally sympathetic ear to all points regardless of whether I believe that they have merit.
I am sorry that I failed to get across the key simplicities of where we are on Clause 1 and the proposed amendments, but the Bill’s purpose, which has been widely recognised, is to bring a new degree of independence to the construction of the forecast and to the establishment of whether the Government are likely to meet their fiscal policy mandate. Those are huge advances on where we have come from and the Bill is very much focused on that. Clause 1 and the linkage to the charter are all about that.
This Government have many other transparency objectives, but it is not the objective of the OBR and this Bill to stray into other areas related to economic policy-making. The purpose of the budget responsibility parts of the Bill is very much focused on the central core mandate of the OBR. Of course, it would be possible to turn the charter for budget responsibility into a much wider analysis of government economic policy, but that is not the charter’s purpose, nor is it the purpose of the Bill. The discussions about intergenerational transfer of fairness and all those things are important issues, but the key element for the consideration of Clause 1 is that the charter sets the appropriate and focused background in which the OBR can do its work.
We have set out a new and unprecedented set of objectives for fiscal policy, but it is not they but the mandate that flows from them that is the critical element. I am listening to questions about the drafting of the objectives, and I shall consider those carefully in the charter, but that is a very different matter from requiring in the Bill a direct linkage through to economic policy objectives.
Baroness Browning
Does my noble friend recall the concern expressed by the Treasury Committee when Sir Alan Budd appeared before it and the regrets expressed by Sir Alan when the interim OBR strayed into the area of employment forecasting? The feeling was that that was very unhelpful to the credibility and reputation of the OBR.
Lord Sassoon
I am grateful to my noble friend for reminding us that the OBR should be set a focused mandate. It is then up to the OBR what it considers is appropriate, in its analysis, to explain as background to the mandate that it has been given. It is clearly neither necessary nor helpful to give this Bill different purposes from those that it has—to set a remit for the Office for Budget Responsibility, which is what the charter intends to do, and only that.
Lord Myners
Barely an hour ago, the Minister was telling the House that the OBR report had broken new ground in making employment and unemployment forecasts and what a wonderful step this was compared with what had happened under the previous Government. In response to the observation from the noble Baroness, Lady Browning, I believe that Sir Alan Budd’s reservation was that he had allowed OBR employment forecasts to be released one day early in order for them to be used by the Prime Minister in Prime Minister’s Questions rather than that he had any reservations about the OBR moving into the area of employment and unemployment.
To go back to the point of the amendment tabled by my noble friend Lord Eatwell, fiscal policy and economic policy are inextricably linked and the Minister has given us no good reason why the two should be treated entirely separately so far as the charter is concerned. My anxiety is that, unless the Minister provides us with better explanations on these points, the Committee stage will be wasted, because all these amendments will be repeated when the Bill returns to the House. The Minister is failing to make appropriate use of the opportunity that Grand Committee provides for such matters.
Lord Sassoon
I think that some noble Lords want to have it every which way. The fact is that within the mandate that the interim OBR is being given, it has felt it appropriate—and we welcome this—to set out forecasts for a wide range of things. It is not that these employment forecasts were not done before; it is just that the previous Government chose not to share them with the British public and the economic commentators. The 150-page document that has been put out today is the best indication that the OBR is not going to hold back on analysing and laying out the full background as it considers appropriate under the minimum forecast requirements set out in paragraph 4.10 of the charter. I suggest that we can take confidence from the fact that there is nothing that the OBR feels inhibited about in doing whatever is necessary to underpin the conclusions that it needs to come to on the fiscal mandate and in laying out the full forecast.
Lord Myners
May I briefly beg the noble Lord’s indulgence one last time? I take great comfort from what he says and I fully agree about the failures of the previous Government to disclose fully a wide range of economic forecasts. I cannot be more supportive of the OBR’s broad intention in this and in many other respects. However, there is a provision in the Bill under which the Government can give the OBR guidance, and that guidance stands above all others, including the point that the OBR should perform its duty objectively, transparently and impartially. Therefore, can the Minister confirm that the Government will not be using the guidance process in any way to restrict the OBR’s ability to comment on general economic matters? If the Minister could give us that assurance, it would give me considerable encouragement.
Lord Sassoon
I am grateful to the noble Lord and I confirm what he said about the broad purposes and the general greater transparency that flows from all this. I do not believe that anything in the Bill restricts the OBR’s ability, within its mandate, to lay out whatever it considers appropriate. Indeed, I do not think that anything in the guidance will dictate the methods of analysis that the OBR undertakes. The guidance absolutely cannot include provisions on that. The charter seeks to explain what transparency means. Perhaps it is appropriate to highlight paragraph 4.8 at the top of page 12 of the charter, which states:
“Transparently means that the OBR is to act openly, setting out with clarity the assumptions and judgements that underpin its work. It should proactively seek to make available its analysis. It should publish reports according to a regular and predictable process”.
It gives very wide latitude in the areas to which the noble Lord rightly draws attention. We are not seeking to circumscribe how it does this.
Lord Barnett
The noble Lord now seems to be saying that the OBR can already do the job that the amendments are suggesting. In that case, why not accept the amendments? He has not given us a good reason for rejecting them. He seems to be saying that the OBR can already do the job and the amendments are not necessary, so what harm would including them do?
Lord Turnbull
May I respond to the noble Lord, Lord Myners? He talked about not restricting the OBR’s ability to comment on general economic matters. We are trying to create an instrument of fiscal policy, not a council of economic advisers that can comment on issues, such as whether the economy is competitive, whether we have the right set of industry instruments or whether the policies are correct for the flexibility of the labour market. The OBR can forecast the effects of the policies as they stand. There are references to the Government providing the OBR with as much information as possible to enable it to make those forecasts, but it is not the OBR’s role to become a general commentator, as happens in some other countries, on all aspects of economic policy generally. Some of the amendments seem to be taking us towards that goal.
Lord Sassoon
I am grateful to the noble Lord, Lord Turnbull, for pointing that out. I do not accept the analysis of the noble Lord, Lord Barnett. Yes, it is correct that, as exemplified by what we have seen today, the OBR indeed has the freedom to do what Members of this Committee are asking for, but that is not what these amendments are essentially about, as the noble Lord, Lord Turnbull, pointed out. Clause 1 is not about the Office for Budget Responsibility doing things; it is about the Treasury producing a document to be known as the charter for budget responsibility. We could require the Treasury to produce all sorts of documents laying out economic policy and a huge number of other things, but the point of the clause is for the Treasury to prepare a document, the purpose of which is to set the background against which the OBR does its work. I have obviously failed to explain it, but the very distinguished former Permanent Secretary has come to my aid to point out that the Bill will set up an office focusing on fiscal policy. That is why the charter relates to fiscal policy. We do not want to widen it out, as the noble Lord said, to a document that sets a background for this office to go into all sorts of wider economic commentary. That point, as my noble friend reminded us, was made by the Treasury Select Committee.
Lord Myners
That is why the Chancellor of the Exchequer and other Ministers must be very careful when they present the reports of the OBR to the committee. Clearly, in the other place, as repeated in our House, the report of the OBR was given by the Minister as an economic commentary. In the Minister’s response to questions, he used the OBR to validate the correctness of the Government’s economic strategy. The noble Lord said earlier that we cannot have it one way and then the other. I suggest that he and the Government cannot either. I hope that he will now answer the question asked by the noble Lord, Lord Higgins.
Lord Sassoon
First, Robert Chote and the Office for Budget Responsibility presented their own report this morning. I was unable to watch the whole of the Q&A session and do not know how long it went on, but it was wide-ranging. I believe that the document was seen on embargo terms by journalists ahead of the presentation so that they could ask informed questions of the OBR directly afterwards. Before somebody else challenges me on this, I should say that the OBR has pointed out that it will not always be able to present a document first if it is opining on new policy announcements. There will always be an opportunity to question the OBR directly on its forecasts, but that will be one part of the supporting architecture alongside a variety of other measures of performance, as well as new policy developments related to that, which a Chancellor will always at any time be responsible for. Of course, Chancellors must represent the OBR’s work correctly, but it is entirely appropriate and necessary for it to refer to that work in the broader policy context, just as I have explained that the charter and the Bill relate to only one—albeit critical—element of the Government’s overall economic policy-making framework.
Lord Higgins
Am I right in thinking that the Minister rejects this amendment?
Lord Sassoon
Yes, I am rejecting it. I am nervous of getting another lecture of the formalities of how we operate in Grand Committee. I had understood that we went through the formality of my doing the proposers of amendments the courtesy of formally asking them whether they will withdraw. If that is not the process, somebody will no doubt advise me. While the amendment has led to some interesting observations about the precise wording of the fiscal policy mandate and other aspects of the charter, in relation to the basic question of whether the Bill—and, by implication, the OBR’s work—should be opened up to a much wider commentary on the Government’s wider economic policy, I think absolutely not.
Lord Peston
There is no problem on the formalities. I am someone who has become a great advocate of Grand Committees as a way in which to deal with almost all our Bills, because I interpreted these Committees as a place where there could be a meeting of minds and where the Minister thought about things rather than writing down, as my noble friend Lord Myners said, “Reject, reject, reject”. If that is really what we are going to get, I do not know whether I personally will bother to waste my time with him. I regard it as outrageous if we are going to get rejection after rejection on the next amendment and the one after it. If that is going to be his style, because essentially that is what he has been told to do, why are we here?
Lord Sassoon
I am only a new boy to this process, but I cannot believe that the noble Lord, Lord Peston, is beginning to suggest that because a Bill comes into Grand Committee we have to accept everything that is proposed in amendments. Yes, there may be a run of amendments that I and the Government see little merit in but, if I see merit in them, I shall respond accordingly. There does not seem any point in my saying in a wishy-washy way that it is all rather splendid and that I shall go away and think about it when I think that the amendments do not have merit.
Lord Peston
The noble Lord misses my point, which is to ask whether this is how he is going to treat all the amendments. He knows how he is going to treat them because the documentation is sitting behind him at this very minute. If that is what is going to happen, except on trivial amendments, I repeat my question: why are we here? We expect the Government to say, as a minimum, on some of the substantive amendments, “The arguments have been good and we must go away and think about them”. If we are not going to get that on anything substantive, I repeat: why are we here?
Lord Sassoon
We should not prolong this for too long—although I am happy to. If I feel, having heard the arguments, that I should take the amendments away or that I should accept them, I will say that. I will try to tell noble Lords what I believe, but I do not believe that these amendments have any merit. If there are amendments that I believe have merit, I will endeavour to make that abundantly clear.
Lord Eatwell
My Lords, I realise that this is the first time that the Minister has had to face a Grand Committee and perhaps he will be better prepared next time we meet. However, as to these amendments, I have just four points to make in response to our debate.
The first is purely technical, in that the Bill as drafted is inconsistent. Clause 6(1)(a) states that the charter for budget responsibility may include guidance about the,
“assessment or analysis required to be prepared under subsection (3) or (4) of”,
Clause 4. However, subsection (3) of that clause refers to “fiscal and economic forecasts”. The charter is therefore required by Clause 6 to provide guidance on economic forecasts. The Bill is inconsistent if “economic” is not included in Clause 1. It is not at all clear what the Government really intend to do. It is only clarity that I seek here. As noble Lords have said, there is no great economic or political point behind all this. Actually, there is a good economic point, but there is no great political point. The amendment aims purely at making the Bill consistent.
My second point is that, in its consideration of fiscal policy, the OBR has to have some guidance as to the Government’s overall economic policy. Otherwise, it is not possible for the OBR to make a coherent assessment. If you do not believe me, just look at this document, the OBR’s Economic and Fiscal Outlook, which is exactly that. It is a very fine document, if I may say so. For example, the delayed rebalancing scenario and the weakening demand scenario are discussed in the document. Why is that? It is because the OBR is linking different economic performance to the consequences for fiscal performance. That is exactly what this document does.
I accept the point made by the noble Lord, Lord Turnbull, that we are not trying to set out some broad economic assessment committee, but, as another gloomy Cambridge economist, he should recognise that there is a clear interrelationship between economic and fiscal policy. The intention of these amendments was simply to capture that relationship. If this could be done in a better way and could make the Bill consistent, I would be very happy. If the Minister says, “We’ll think about this and see if we can achieve that in a better way”, so that this document does not trespass beyond the mandate given by the Bill to the OBR, I would be very happy.
I turn to Amendment 4. The Minister asked why the fiscal mandate should require an economic dimension. Here, there is a bit of economics involved, because there is a view among some economists that the economy has a normal rate of activity and a normal rate of employment to which it persistently returns having moved away from them because of some economic shock. It is clear that that is not the view of the economists who wrote this document, otherwise they would not have written such scenarios. It recalls the remark of the Nobel Prize-winning economist, Professor Robert Solow, that this view of policy was a vision in a dream. The fiscal mandate requires some economic dimension, because you could have different results depending on the nature of your economic policy—they are interlinked. That is all that I am trying to capture in my amendments—nothing more and nothing less.
I say in response to the noble Lord, Lord Oakeshott, that I do not think that the drafters of the charter know what “intergenerational fairness” means or what the economics of intergenerational transfers consist of. The noble Lord, Lord Higgins, got it exactly right: it is about changing the rate of investment in the economy. It has nothing to do with fiscal policy as such and it should not be in the charter. The suggestion of the noble Lord, Lord Oakeshott, that the word “intergenerational” be removed would provide some validity to a sentence that currently has none.
I am afraid that I must reflect the general opinion around the Grand Committee that these points have not been answered; indeed, I am not clear that they have been understood. Accordingly, I shall need to return to them on Report, by which time some more careful thinking about them will hopefully have been done.
Lord Sassoon
We have gone into territory in this discussion that is well beyond the consistency of the Bill. Consistency is important and we of course want to get it right. I see no difficulty in having consideration of an economic forecast, as provided for by Clause 4(3)(a), without there being a government statement in the charter on broader economic policy. I accept that there is a critical need for the OBR to make an economic forecast to underpin its assessment of the fiscal mandate, but I am still struggling to grasp the point on consistency.
Lord Eatwell
Perhaps I could help the Minister. Clause 6(1)(a) requires the charter for budget responsibility to give guidance on how to pair subsections (3) or (4) of Clause 4. Subsection (3)(a) of that clause refers to “fiscal and economic”. The charter must therefore include guidance on “economic”. At the moment, it does not.
Lord Sassoon
We are possibly getting this a little confused. Of course, in order to make an economic forecast, it may be appropriate for the charter to give, as it does in paragraph 4.10, guidance on economic forecasts, but that is very different from setting out in the charter the Government’s broad economic policy objectives. It is unnecessary, distracting and inappropriate for the charter to go into the broad economic policy objectives of the Government. However, I quite see that it is appropriate for the charter to go into questions that touch on economic forecasting. Indeed, it already does that, which is completely compatible with the terms of the Bill.
I will of course look again if it is a narrow consistency point. However, in trying to make a consistency point on what does not, from my reading of the Bill, need to be tidied up, the amendment opens up a much bigger swathe of territory, as I am sure the noble Lord is well aware, by including in Clause 1 broad questions of economic policy objectives. Yes, it is appropriate to talk about economic forecasting guidance in the charter—indeed, it is there—but its being there is much more specific and appropriate than opening up the charter to economic policy which, I would suggest, is simply not relevant. We will have a look again at the consistency question. My reading of it is that we do not have an issue there, but I will look at it again.
On the intergenerational question, I made the point that I am listening to what people say. I do not pretend for one minute to be an expert on the different interpretations and consequences of intergenerational fairness, but I will take back the suggestions that we have had on that from both sides of the Committee. Again, that is not something which, if there was any merit in changing the charter’s wording, needs any amendment to Clause 1 of the sort that we are discussing.
Lord Brooke of Sutton Mandeville
My Lords, I apologise to the Committee if I have acted improperly by rising after the noble Lord, Lord Eatwell. I tried before.
The noble Lord, Lord Higgins, and I at different stages in our lives were Treasury Ministers in different Administrations under different Prime Ministers. Both of us served for several years. Before that time, I had the privilege of serving as a Back-Bench Member on the Finance Bill when the noble Lord, Lord Barnett, was Chief Secretary. There is symmetry here with my first experience of the noble Lord as a tutor on the Finance Bill because he was extremely scathing about the first group of amendments that I tabled. My noble friend Lord Lawson of Blaby had to rescue me and explain that there was more to my amendments than the noble Lord, Lord Barnett, was suggesting. However, the reason why there is symmetry with this moment in the Grand Committee’s affairs is that the second time I moved amendments, which was the very next group, the noble Lord accepted them with enthusiasm, which was extremely good for a young pupil. We have just experienced everyone being mildly upset with my noble friend the Minister, but it is just possible that everything will be set right by what he has to say.
Two of my noble friends on this Grand Committee, as Conservative Peers, have taken opposite views of these amendments. Obviously there are things to be said on either side. I am going to extend the Minister the courtesy of listening to him, not least because that also seems to me one of the purposes of Grand Committee.
Lord Sassoon
Oh dear! Where do I start? I should say—because I genuinely mean it—that it is important to have full and appropriate scrutiny in your Lordships’ House of what the OBR is about. However, we must be careful. I do not want to be too hidebound by some inappropriately narrow interpretation of propriety and convention, but I think that we need to be careful about the balance between achieving full scrutiny here and not crossing inappropriate lines. We need to remember that there are a lot of important provisions in the Bill that will enable scrutiny by Parliament as a whole, so the Budget Responsibility Committee will indeed be available for Select Committee scrutiny. Its forecasts and very full analysis, which we have discussed at some length, will be laid directly before both Houses. On funding, there will be separate reporting of the OBR’s expenditure in the Treasury estimates presented to Parliament, and of course there have already been quite a number of Written Questions. The noble Lord, Lord Myners, does not always like the way that I reply to his Questions, but perhaps if he would cut them down from six to one a day, I could focus even more attention on providing him with a really good Answer. However, as he knows, Questions that he and other noble Lords send in which relate to the OBR’s responsibilities always get passed on to the OBR.
Lord Oakeshott of Seagrove Bay
It is not just under this Government that that has been happening; it is a problem with the Treasury generally, although it has been happening particularly under this Government. If the Treasury made a bit more effort to answer Questions honestly and fully the first time, we would not need to ask them two or three times. It is a bad problem.
Lord Sassoon
I had not intended to go down this interesting byway, but there has been a singlehanded contribution by the noble Lord, Lord Myners, to a considerable increase in the number of Written Questions. I am very happy to give him the figures, although I do not have them to hand. The number of Questions for Written Answer that the Treasury has had to deal with in the past six months has been significantly above the figure that previous Ministers in the Treasury—principally the noble Lord himself—have had to face. Nevertheless, our record on answering Questions on time has improved dramatically, and I am very happy to supply the noble Lord with the data. I am conscious that we are scheduled to go on for only another 35 minutes, so perhaps we should go back to the Bill. However, with regard to answering Treasury Questions, I am happy to discuss the relative performance of this Parliament compared with the previous one if it would interest the noble Lord, although I shall do so on another occasion.
We want plenty of scrutiny in this House. Clauses 1(4), 1(6), 2(3) and 8(2)(b) all confirm that the OBR’s reports will be presented to the whole of Parliament, not just to another place. I will return specifically to the question of committee scrutiny, but it is important that the Economic Affairs Committee of your Lordships’ House should have, and will have, responsibility for whatever it thinks appropriate in considering economic and fiscal issues, including those that relate to the OBR. However, I do not believe that any of the amendments in this group are necessary to achieve that.
When it comes to the relatively narrow but important point on formal approval of the charter, perhaps this will not surprise noble Lords, but I very much lean towards the argument of my noble friend Lady Noakes, because, critically, the charter contains the fiscal mandate, which I believe should be properly considered in another place, rather than here.
Lord Peston
Is the noble Lord actually saying that the definitive view of the Clerk of the Parliaments is mistaken? The Clerk of the Parliaments states categorically that this House can look at fiscal matters; end of story. Why is the Minister taking the view that he is taking?
Lord Sassoon
I have made it completely clear that I think it is absolutely appropriate and important that this House considers fiscal and economic matters; and within the framework of the Bill there are opportunities to which I have specifically drawn attention, whether they are on the Floor of the House or in the Economic Affairs Committee. I am not for one minute challenging the ruling, but that is a different proposition from the specific proposition that this House should be responsible for voting on the adoption of the charter, which has within it a specific mandate that is in the province of another place. That does not cut across the absolute right that this House must have, whether in full session or in a committee, to consider fiscal matters, and I have drawn attention to four references in the Bill where that is made completely clear. That is different from the question of the approval of and voting on the charter, which contains the mandate. That would be straying into territory into which this House should not stray, as my noble friend Lady Noakes has said. The same principle held under the previous fiscal policy framework. I am not saying that just because something was held previously it should necessarily mean that it should always be right, but it is important in this context to remind ourselves that the code for fiscal stability, which the charter replaces, was approved and subject to amendment through a resolution in another place; and the fiscal targets set through the fiscal responsibility—
Lord Turnbull
Perhaps I may suggest a way through this. One of the problems is that the action in subsection (7) could take place before the House of Lords has had a chance to comment on it. There is not even a right of consultation and no right even for noble Lords’ views to be heard before the House of Lords votes. If the Minister wants to retain the ultimate right of decision, something may perhaps be done about the sequencing, whereby the decision does not take place until the Economic Affairs Committee or whoever has had a chance to consult on this matter. That would enshrine the right to involvement, but would not give the House of Lords a right to decide in areas where you do not think it should have that right.
Lord Sassoon
I am grateful to my noble friend. Clearly, whether it is comments from the EAC or the comments that we have already had today—we will no doubt get more as we consider this Bill—as any comments come in on the charter, we will listen. We are very willing to take them in any form. I am not sure whether there is a way to accommodate another formal sequencing of comments, but we are absolutely open to comments and the charter has already been out there in public for a week.
It is also worth mentioning that the Delegated Powers Committee of your Lordships’ House has looked at all the delegated powers in the Bill, including the provisions for the charter to be approved in another place. It is perhaps worth reminding ourselves that that committee said:
“There is a very full memorandum for the Committee from H.M. Treasury which covers all of the delegated legislative powers and also some other powers of an administrative character. There is nothing in the Bill to which the Committee wishes to draw the attention of the House”.
That is an important and considered view from our guardians of delegated powers. I take the point from the noble Lord, Lord Turnbull, that we should not lose any opportunity to get comments on the draft. I hope that I have reassured noble Lords that we absolutely see the Economic Affairs Committee and the House itself continuing to take a broad interest and to play a part in holding the Government and the OBR to account on this framework but, on this precise point, we must be careful not to stray over the line of constitutional propriety in a way that was certainly enshrined in the previous fiscal arrangements.
I should say one or two things about Amendment 8. The noble Lord, Lord Eatwell, described it as “cumbersome”. I was not going to use anything quite so direct but he goes to the heart of the point. Clearly, Parliament plays an important role in scrutinising the appointment of the chair of the OBR and other members of the BRC. I think that we have gone further, in that respect, than in any other appointment processes. However, whether it is because it is cumbersome or simply goes a step further than is necessary or appropriate, we believe that the Treasury Select Committee is the most appropriate means to exercise that scrutiny, given the nature of the body.
I do not want to labour the point, but we must remember that the chair and other members of the BRC may appear before the Economic Affairs Committee to discuss the work of the office. From a government perspective, I would welcome the scrutiny of the EAC, but I think it is right to preserve the role of the Treasury Select Committee on, specifically, the appointment.
This links with Amendment 35, the final amendment in this group, which requires that OBR members must appear before or provide evidence to the Treasury Select Committee or the Economic Affairs Committee of your Lordships’ House when requested. To restate the point, I agree with the principle of the amendment, but my understanding is that the power to summon individuals to give evidence to parliamentary committees is already in the Standing Orders and that is the way that we customarily leave it. This amendment would place in statute arrangements relating essentially to the internal procedure in the House, and I believe they are not matters that it would be appropriate or necessary to put in the Bill.
This group of amendments helpfully draws attention to the important role of this House in scrutinising critical aspects right across the OBR’s remit. That is important in the context of, particularly, the EAC’s ongoing role in broader economic policy-making. There is nothing in the Bill that constrains that, but we should not stray over the line in the one rather narrow element that some of these amendments relate to. It is not necessary to enshrine in the Bill matters that are customarily dealt with through the Standing Orders. I hope that I have sufficiently answered noble Lords’ concerns on these issues and explained how we think that the proper role of the House is very much enshrined and that the amendment will be withdrawn.
Lord Peston
On Amendment 35, is the Minister saying that he is absolutely confident that, within our normal arrangements, this amendment is not needed because it would be inconceivable for the office to refuse to appear before the Economic Affairs Committee of your Lordships’ House on the grounds that it was none of its business? Is he saying categorically that he knows that it could not refuse—to use my noble friend Lord Eatwell’s word—a reasonable request from the Economic Affairs Committee to appear before it? Is he absolutely certain that is so, because the amendment went down to get a reply that said it is not needed?
Lord Sassoon
My clear understanding is that the Standing Orders absolutely give all the necessary authority to committees of this House to summon members of the OBR, just as they summon other people to appear before them. I see no let or hindrance particular to the OBR.
Lord Higgins
My Lords, the Minister is absolutely right that Amendment 38 is not necessary, but his reply was otherwise somewhat disappointing. We will, no doubt, wish to consider that, particularly the reference to the Delegated Powers Committee, before the next stage of the Bill. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
The amendments raise in different ways an important issue in relation to the draft charter. The noble Lord, Lord Turnbull, drew attention to paragraph 3.7, which states:
“The Treasury will continue to maintain the necessary analytical and macroeconomic expertise to provide on-going advice to the Government”.
That sounds perfectly sensible. However, it goes to the heart of the rather grey area of what OBR independence means that the same paragraph should declare:
“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.
Indeed, according to the draft charter:
“The OBR’s forecasts are essential inputs to the Government’s ongoing policy-making”.
And yet, the Government retain the right to disagree. I can see that the Government can maintain the right to disagree with anybody, especially with an independent body—which the OBR is supposed to be—but I do not then see how they can adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget report. They cannot adopt something with which they disagree as the official forecast; it just does not work. They cannot have it both ways; it is nonsensical.
It is obvious that the OBR will need to work closely with staff at the Treasury and other government departments in developing costings. That is why we should expect consistency between the OBR’s forecasts and those used by the Treasury—after all, they have worked together to bring them to fruition. They are the crucial decision variables. In his foreword to the forecast document that we discussed in the Chamber today, Robert Chote thanks government departments for providing the decision variables which have gone into it. The OBR is in essence a rather peculiar body. It is not really a non-departmental public body; it is a Treasury non-departmental public body which plays a crucial role in the development of policy. As paragraph 3.7 of the charter precisely states, it is the “official forecast”. I do not understand how the Government can disagree with the official forecast. They can disagree with the OBR, for example, when it takes a punt in describing some scenarios, as it does in the charter, but how can they disagree with the official forecast?
I cannot see why there is a need to require consistency between forecasts put forward by the Treasury and those put forward by the Bank of England. The noble Lord, Lord Turnbull, referred to competition between forecasts. I would take a rather different view and say that to require consistency would endow forecasts with spurious precision, whereas there are number of judgments in forecasts which are worth discussing in the context of the formation of economic policy.
The underlying point is that the OBR is distanced from official policy-making to a degree that was not possible in the past. That is an achievement of which this Government should be proud. But to describe the OBR as “independent” is an exaggeration. It is useful for propaganda purposes, but it is not credible to grown-ups, because it has to be involved in policy-making. There is a degree of independent methodology but not really of judgment, which is a different dimension. The Minister has to answer the following question: how can there be an official forecast with which the Government then disagree?
Lord Sassoon
Let me start with the easy end of this. Some important points were raised, not least the crucial point raised by the noble Lord, Lord Eatwell. I am very grateful to the noble Lord, Lord Higgins, for trying to save postage—we do look at every bit of possible wastage around government. However, on the point that my noble friend Lady Noakes raised, the construct here is that in Clause 8(2) the OBR is required to lay its reports before Parliament, and that means directly. So it is probably worth the price of a postage stamp or somebody pressing an electronic button, or whatever one does these days, to ensure that, given that this is an independent body, it does not forget to send a courier round to the Treasury as well. That is probably a failsafe that we should have in there.
On the nub of the questions around the linkage of the forecast to the Treasury and the linkage between the forecasts of the OBR and the MPC, the noble Lord, Lord Turnbull, kindly drew our attention to paragraph 3.7 of the charter. That is the critical one. In the first sentence it says:
“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.
That is the Government’s intention, but the charter continues by saying that the Government,
“retains the right to disagree with the OBR's forecasts”.
Lord Eatwell
Will the Minister clarify this for me? Is he saying that while the Government intend to accept the OBR’s forecast, they may actually reject it? Is that what he is saying here?
Lord Sassoon
I would not express it in quite those terms. It is absolutely the intention and the expectation that the Government will adopt the forecast in all but the most extreme circumstances. In answer to the challenge of my noble friend Lord Newby, it would be wrong to start thinking about hypothetical contexts. It is right, and it is the intention of the construct of the Bill and the charter, as the noble Lord, Lord Turnbull, explained it—and I agree with him that this is the appropriate construct—that ultimately the Minister directly accountable to the electorate and Parliament should retain the discretion not to use the OBR’s forecasts. That should be only a fall-back situation that needs to be legislated for. It is ultimately a decision that must be made by a Minister who is directly democratically accountable as part of the Government, as I hope we would agree, because it is so critical to underpinning economic policy. That does not change the fact that the OBR will be responsible for producing the official forecast or that the Government expect that there will be circumstances in which they disagree with the forecast. Nevertheless, it is entirely appropriate that that failsafe is allowed for and, in those circumstances, the Chancellor of the Exchequer will have to make the nature of the disagreement absolutely clear to Parliament. It will be completely transparent and the Chancellor should answer that question. That is exactly what we intend to have, but that does not mean that we are taking the OBR’s forecasts in any way lightly; it is a failsafe mechanism ensuring appropriate parliamentary and ministerial accountability.
There was one thing on which I may have misunderstood or misheard the noble Lord. He may have said in passing that he believed that the construct made it necessary for the OBR to be involved in policy-making. I see the noble Lord indicating that he did not say that. Good. Our construct means that the OBR absolutely is not involved. Just to be clear, it should not be involved in policy-making, and that is linked to why, at the end of the day, the Chancellor must have the right in extreme circumstances to disagree.
Lord Eatwell
Just to clarify, the point that I was trying to make was that the charter states that the OBR plays an important role in policy-making by providing forecasts and other estimates. In other words, those forecasts and estimates are part of the toolkit for making policy, but the OBR does not itself make policy decisions. That is what I meant to say.
Lord Sassoon
I am grateful that we have got that clearer. I should move on briefly to the question of whether it would be appropriate to align the forecasts of the OBR with those of the Monetary Policy Committee. Again, I am very much with the analysis of the noble Lord, Lord Turnbull, on this. It is worth mentioning what Robert Chote, the OBR chair, said on this subject. He made it clear during the hearings of the Treasury Select Committee that, as he sees it, the OBR and the Bank of England are independent bodies and each needs to make its own judgments for its own reasons. I completely agree, but he went on to say that he recognised that it would be valuable for the Bank of England and the OBR to have regular exchanges of views about areas of common interest. I expect that the OBR will exchange views with a range of organisations and individuals and, when introducing its document today, the OBR made it clear that in this first document it had met a range of organisations and individuals. In that context, of course, I would expect the OBR regularly to talk to the Bank of England, and each would be very interested in the other’s approach to these matters. However, it is critical that at the end of the day the OBR acts independently of the Monetary Policy Committee, of the Treasury and of all these other fine forecasting bodies.
These are important matters, and I hope that I have clarified the intention of the legislation in these areas. However, I believe, as do the majority of noble Lords who have spoken, that the OBR’s forecasts must ultimately be independent. Therefore, I ask my noble friend to withdraw his amendment.
Lord Higgins
My Lords, it seems to be still absolutely clear that having monetary policy based on one lot of forecasts and fiscal policy based on a different set of forecasts is likely to turn out to be very bad news indeed.
Secondly, on the question of whether the official forecast is to be predominant—a point that the opposition Front Bench made—it seems to me that the whole fanfare at the original press conference was saying, “No more fiddling figures by the Government or the Treasury—we will have a totally independent forecast”. Now we are told that it will be an independent forecast, but that the Government, if they do not like the OBR’s figures, might perhaps produce their own. I fail to see the point of the entire exercise if this is so. We will no doubt wish to return to this later, but, meanwhile, I beg leave to withdraw the amendment.