Budget Responsibility and National Audit Bill [Lords]
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (Justine Greening)
I beg to move, That the Bill be now read a Second time.
Fiscal responsibility is the overriding priority of this Government. In May, within 24 hours of taking office, we published a coalition agreement setting out our agenda for government. Fiscal responsibility was the very first item on the very first page of that agreement. It read:
“deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain.”
Let me remind the House why we chose that as our priority. We inherited the largest budget deficit in our peacetime history, we inherited a budget deficit forecast to be the largest in the G20, and we inherited the largest structural deficit in the whole of Europe. We simply could not ignore the mountain of debt that was casting a shadow over our economy and our people, so we set ourselves an ambitious task—to bring order back to the nation’s finances. The Bill aims to do exactly that.
Mr Mark Field (Cities of London and Westminster) (Con)
Will the Minister add one more criterion to her list—that a moral case needs to be made for ensuring that we do not pass on to future generations the debts that have been racked up for the consumption of the generations alive today?
Justine Greening
I agree absolutely. Far too often we fail to make the point that the penalty for not dealing with the deficit today will be to hand on even bigger debts to our children tomorrow. They will not thank us, and should not thank us, if we fail to address the urgent crisis that we have come into government to tackle.
Before I get into the detail, I would like to set out again the Government’s broader fiscal objectives. This coalition Government believe that fiscal policy should ensure that the national finances are sustainable. As I have just said, sustainable public finances mean that future generations will not need to pay for the services enjoyed by all of us today. Sustainable public finances mean that the economy can expand and grow without the fear of tax hikes and spending cuts in the future. Sustainable public finances also mean that monetary policy can operate effectively and stabilise the economy, when needed. With that in mind, we have taken decisive action since taking office.
In May, we had immediate reductions to in-year spending, which bought us much-needed breathing space in the sovereign debt storm raging across Europe. The emergency Budget in June was the moment when fiscal credibility was restored. At the Budget, my right hon. Friend the Chancellor set out the Government’s fiscal mandate. Our first goal within the mandate is to balance the structural current deficit by the end of a rolling five-year forecast period.
Mr William Cash (Stone) (Con)
My hon. Friend may remember that before the election, a number of us took grave exception to the fact that the then Government were not telling the truth about the full extent of the debt. Will she give us an assurance that this Government will tell the truth to the British people, in line with the National Audit Office and Sir Michael Scholar, so that they know what the Budget deficit really is?
Justine Greening
My hon. Friend makes an excellent point. The way to provide that guarantee and certainty is to pass the Bill before us today, which sets up the Office for Budget Responsibility—but does so, critically, as an independent organisation that will make its own forecasts. In so doing, it will contribute to being independent of Governments and provide credible official forecasts for the first time in our country. That will give us the certainty we need. I will come on to explain later how we ended up needing official forecasts to be done independently, referring to the problems that had arose prior to this Parliament.
Mr Edward Leigh (Gainsborough) (Con)
The Government have a serious political difficulty, to which the Justice Secretary referred over the weekend, giving rise to a considerable amount of publicity. All over the country, local authorities are loading cuts on to front-line services, yet we read today that scores of local authority executives earn more than the Prime Minister. What is the Minister’s message to local authorities? Will she insist that they deliver real efficiency savings to avoid these cuts in front-line services, which are so politically damaging?
Mr Deputy Speaker (Mr Nigel Evans)
Order. I would be grateful if the Minister answered that question in relation to the Bill before the House.
Justine Greening
No doubt my hon. Friend will be encouraged to learn of our belief that our efforts to cut back-office costs and protect front-line services in Whitehall should be replicated in town halls.
Key to understanding progress against the Government’s fiscal mandate are strong, credible, independently conducted official forecasts. Our first goal is to balance the structural current deficit by the end of a rolling five-year forecast period; our second is to see the public sector debt ratio fall at a fixed date in 2015-16. The measures that we set out in the Budget, along with the departmental allocations that we set out in the spending review, constitute a four-year plan to meet that fiscal mandate. We are currently on track to meet the mandate one year early, in 2014-15.
Kate Green (Stretford and Urmston) (Lab)
I understand the Government’s objective to reduce public debt over a fixed period, but what flexibility does the Minister feel needs to be built into the system to take account of unexpected economic circumstances and shocks?
Justine Greening
I have just defined that flexibility. Although we want to balance the structural current deficit by the end of the rolling five-year forecast period, we are, as I have said, on track to meet the mandate one year early. We are clearly ensuring that we will achieve our overall objectives. By the end of the current Parliament we will have completely eliminated the structural current deficit, and the debt ratio will be falling. That is our four-year plan for restoring order and stability to our nation’s finances, which has been praised by the international community and welcomed by the financial markets.
Sajid Javid (Bromsgrove) (Con)
The Minister refers to praise from the international community. If she was referring to the International Monetary Fund, I welcome that praise. She will also be aware that the IMF’s independent evaluation office reported last week that it had felt intimidated and bullied by the Treasury in which the current shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls), and the Leader of the Opposition played a key role between 2004 and 2006, and that it had been forced to water down its criticism of United Kingdom fiscal policy. Will she reassure the House that, as the IMF has praised this Government’s plans for the OBR, it seems that we did not intimidate it as the last Government did?
Justine Greening
I hope that we will have an altogether more constructive relationship with the IMF. In fact, it has already commented on the background to the need for this Bill. In November last year, it stated that the recent crisis led the UK to suspend its two national fiscal rules—the golden rule and the sustainable investment rule—at the end of 2008, and that the credibility of the national rules as effective constraints of policy action was weakened well before the crisis. It went on to say that the rules failed to prevent a worsening of the fiscal balance in the years leading up to the crisis, leaving insufficient buffers as the economy entered the downturn, and that while in place the golden rule was often criticised becauseit provided insufficient monitoring, transparency and accountability of fiscal policy. That was the IMF’s assessment of the previous fiscal mandate, and I think that it demonstrates clearly why it was so ineffective in tackling the problems that our country experienced. In many respects, it provided the ground on which those problems were able to prosper and grow.
Claire Perry (Devizes) (Con)
Does the Minister agree that the problem when the Treasury sets rules of that kind is that such rules can be broken, manipulated and “gamed” for entirely political reasons? Following the establishment of the OBR, for the first time we will have a Treasury that focuses on real control of the public finances and value for money for the taxpayer, rather than a policy-making, press release-driven organisation.
Justine Greening
My hon. Friend makes an excellent point. We cannot allow the Treasury to be judge and jury. That was the problem under the last Government. The Institute for Fiscal Studies said recently:
“If an OBR had been in existence over recent years it might have discouraged Gordon Brown from persevering with fiscal forecasts that most independent analysts thought over-optimistic from 2002 onwards.”
We believe that the OBR can have a real impact on the Government’s financial and fiscal management.
We are clear about the fact that we need to put our country’s public finances back on a sustainable footing. Both the IMF and the OECD went from issuing warnings and cautions about the UK’s economy and public finances to describing the measures introduced by the coalition Government as “essential” and “courageous”. Only a couple of weeks ago the Secretary-General of the OECD urged the British Government to stay the course, and we will. Our bold action has taken Britain out of the financial danger zone, but we must not forget that none of this would have been possible without the crucial first step of increasing the credibility of our fiscal framework. The Bill will put on a statutory footing our reforms of the way in which fiscal policy is conducted in this country.
Let me remind the House of the origins of the Office for Budget Responsibility. Within a week of taking office, we had set up a new independent body to return credibility to official forecasts. Until then, the final decision on official Government forecasts had always been made by the Chancellor and his advisers—one of whom is now shadow Chancellor—rather than by independent experts. Over the past 10 years, the last Government’s forecasts for growth in the economy have been out by an average of £13 billion, and their forecasts of the budget deficit three years ahead have been out by an average of £40 billion. Unsurprisingly, those forecasting errors have almost always been in the wrong direction.
Alec Shelbrooke (Elmet and Rothwell) (Con)
The transparency that the Bill brings to finances is part of an overall package of transparency. My hon. Friend mentioned budgets that have overrun. Does she agree that the Bill will help to prevent Departments from losing control of their budgets in the way that was described recently by a senior civil servant?
Justine Greening
My hon. Friend is right. The fact that, for the first time, official forecasts will be prepared by a body that is independent of the Treasury is critical. It will not only return credibility to the assessment of whether the Government are on course to meet their fiscal mandate, but will make that more likely to happen. I believe that Governments will be reticent about introducing policies that seem to take them off course. There is a clear distinction between the responsibilities involved. The fiscal mandate and the policies will continue to be determined by Ministers. It is not for the OBR to do that; what it must do is assess the economic and fiscal forecasts in the light of those policies, and in the light of their likelihood of meeting the fiscal mandate.
Katy Clark (North Ayrshire and Arran) (Lab)
Does the Minister agree that growth is key to economic recovery, and that the recent negative growth figures have destabilised the Government’s economic policy? Is it not worrying that the OBR has already revised its growth forecast from 2.6% when the Government took power to 2.3% following the emergency Budget, and to 2.1% following the spending review?
Justine Greening
I think that demonstrates the value of the OBR. For the first time we shall have a set of entirely independent forecasts to which Members can refer.
The hon. Lady has strayed on to the detail and implications of the policy, and I think that it is perfectly fair for her to do so. We have always said—I believe that Mervyn King, the Governor of the Bank of England, said the same last year—that the recovery would be choppy. It is not at all unusual for an economy emerging from recession, particularly a recession as long and severe as the one that we have undergone, to experience at least one instance of either flat or negative growth.
I do not want to be called to order, Mr Deputy Speaker, so I shall move on. Let me simply say to the hon. Lady that she has confirmed my point that benefiting from independent forecasts for the first time will be key to holding a good-quality, informed political debate about the Government’s economic policy and how it is progressing, and that the OBR has also said that we are on course to achieve our fiscal mandate.
Mr Peter Bone (Wellingborough) (Con)
Will the Minister clarify something for me? If the OBR says that growth will be x in the next year, must the Chancellor abide by that? Obviously, measures in his Budget may encourage growth: he may cut taxes, for instance.
Justine Greening
The OBR makes an independent fiscal forecast and assessment of the economy. The Treasury may or may not agree with that forecast and assessment, but the point is that it is done entirely independently of the Government. Rightly, however, it will remain the prerogative of Ministers to decide policy. That is the clear distinction we have set out throughout the Bill.
We needed to make sure that we have official forecasts for the economy that the public can trust, even if that means we end up giving away some of our powers as Treasury Ministers. As my right hon. Friend the Chancellor has said, we need to fix the Budget to fit the figures, not fix the figures to fit the Budget. That is why the OBR was established, and the Institute for Fiscal Studies has said it is a “welcome” innovation.
To enable the OBR to get to work immediately, it initially operated on a non-statutory basis. It was headed by Sir Alan Budd, a highly respected fiscal and macro-economic expert in our country. The interim OBR produced an independent assessment of the economy and public finances both ahead of, and at, the Budget in June. We gave it direct control over that forecast, with full access to all the data, assumptions and economic models. It made all the key judgments and decisions underpinning the economic and fiscal forecasts. Great strides were also made in transparency. More information was published than ever before. That fact was noted by both the Treasury Committee and the IFS.
Andrea Leadsom (South Northamptonshire) (Con)
As a member of the Treasury Committee, may I say that it was incredibly valuable to be able to challenge the OBR members who were present and Government Ministers? From our point of view as representatives of Back Benchers, the process was very useful.
Justine Greening
I welcome that helpful intervention. My hon. Friend will no doubt be aware that the Treasury Committee inquiry into the OBR described Sir Alan Budd as an “exemplary” witness. In putting together this Bill, we took on board the Committee’s points, and I am sure my hon. Friend will be happy about the unprecedented role the Committee will play in appointments to the OBR.
The final task of the interim office was to provide advice on how the permanent, statutory OBR should be established. I am happy to report to the House that the Bill is designed in line with the detailed recommendations made by Sir Alan Budd in his letter to my right hon. Friend the Chancellor. We have now moved to permanent arrangements. This Bill enshrines in statute provisions to ensure the OBR’s independence. Robert Chote has been appointed as the OBR’s first permanent chair. His appointment was confirmed by the Treasury Committee. He is supported by Graham Parker and Steven Nickell, whose appointments were also confirmed by the Committee.
The permanent Budget responsibility committee led on the production of the OBR’s economic and fiscal outlook, published in November. In addition, the resources made available to the OBR have been increased. There has been a transfer of technical forecasting capacity from the Treasury to the OBR, and a transparent, multi-year funding settlement has been agreed for the spending review period. The OBR has also moved to a new external location outside the Treasury building.
Let me now turn to the detail of the Bill. We debate this Bill after the constructive scrutiny the other place has given it. The other place welcomed the Bill. Part 1 includes provisions on the new framework for fiscal policy. Clause 1 sets out the need for the Treasury to produce a charter for Budget responsibility setting out the formulation and implementation of fiscal policy. In particular, the charter will set out the Government’s fiscal objectives and the fiscal mandate, and a draft of the charter is available to Members alongside the Bill.
Clause 2 requires the Treasury to produce a Budget document on an annual basis. The detail of exactly what needs to be covered within the annual Budget document is set out in the charter. The Bill also repeals the legislative aspects of previous Governments’ fiscal frameworks, including the Fiscal Responsibility Act 2010, a pointless piece of declaratory legislation that would have made no improvement in fiscal planning, instead merely setting up another set of targets that Ministers would assure us they were going to meet right up until they missed them.
Clause 3 provides for the existence of a statutory body called the Office for Budget Responsibility. Clause 4 sets out the main duty of the OBR, which is to examine and report on the sustainability of the public finances. This is a broad remit, which means that the OBR will not be limited to forecasting alone. At a minimum, the remit of the OBR means it must produce the following: assessments of the likelihood that the Government will meet their fiscal mandate alongside each forecast; a sustainability report at least once a year; a report on the accuracy of its forecasts at least once a year; and full economic and fiscal forecasts at least twice each year. Beyond these tasks, the OBR will be able to undertake any research and analysis pursuant to its remit.
Clause 5 describes how the OBR is to fulfil its duties. Crucially, it includes a set of principles—objectivity, impartiality and transparency—to guide the OBR in fulfilling its remit. It also requires that the OBR must not analyse or develop non-Government policies. Analysis is rightly the domain of the OBR, but, as I have said, policy making is the responsibility of publicly elected Ministers. These principles protect independence. Clauses 5 and 9 also put in place explicit provisions for the OBR to have complete discretion over the way it carries out its statutory duties, giving it full access to the information it requires to do so. The remaining clauses in part 1, as well as schedule 1, set out further detail of the operation and governance of the OBR.
We have sought to reflect the theme of independence in the constitution and governance of the OBR. In line with the recommendation of the International Monetary Fund, the OBR is established with its own legal personality and will operate at arm’s length from Ministers as an executive non-departmental public body. The OBR’s executive functions will be undertaken by a three-person Budget responsibility committee. The members of this committee will be appointed by the Chancellor. To support independence, the Bill makes provision for the Treasury Committee to veto all appointments and dismissals. That statutory veto bestows on the Committee more power than it has over any other public appointment. The Chancellor has said that he is giving the Committee this veto to ensure that there is no doubt that the individuals leading the OBR are independent and have the support and approval of the Committee.
A chairman will lead the BRC and run the OBR. All staff will report to the chair, and that person will control the “hiring and firing” of the staff. The staff will be civil servants, ensuring that the OBR can recruit from the widest possible pool of expertise. There will also be at least two non-executive members, to provide support and challenge to the OBR. The non-execs will report on how the OBR performs its duty. They will also commission expert peer review of the OBR’s forecast and analysis.
The OBR will report directly to Parliament, with its forecasts and reports laid directly in the House, as was the case with the autumn forecast in November 2010. Written questions from Members will be passed to the OBR to respond to, and the members of the BRC will be available for Select Committee scrutiny.
The provisions in part 1 represent a permanent improvement to economic policy making and the transparency of government. Britain is now one of the first advanced economies to have an independent fiscal agency that produces official fiscal and economic forecasts. It is therefore no surprise that these reforms have attracted praise from the IMF, and they put us at the cutting edge of international best practice. I hope that the world will look with interest at our policy innovations.
Part 2 modernises the governance of the National Audit Office. The goal of the NAO is to maintain effective independent oversight of spending. The Bill’s provisions will strengthen the NAO at this critical time of scarce public resources. Members will be aware that very similar provisions were included in the previous Government’s Constitutional Reform and Governance Bill, which passed through this House with cross-party support. However, there was no time for the other place to consider those provisions at the end of the last Parliament, and this Bill represents the earliest opportunity to bring them back before Parliament. The provisions are aimed at implementing the recommendations made by the Public Accounts Commission following its review of NAO corporate governance.
As a result of this Bill, the office of the Comptroller and Auditor General will continue to exist; the CAG will be an independent officer of this House and will be limited to a single 10-year term. The NAO will be established as a new corporate body in its own right. I do not propose to go into great detail on those provisions, given that when they were discussed during the passage of the Constitutional Reform and Governance Bill the then Chairs of both the Public Accounts Commission and the Public Accounts Committee supported them. I also understand that the new Chair of the Public Accounts Committee has indicated that she is content.
In summary, the provisions in this Bill will bring confidence and responsibility back to our country’s fiscal framework, with stronger institutions and improved governance. They are as crucial for the long term as they are for the short term, and I commend the Bill to the House.
Ms Eagle
Nevertheless, independence has to be perceived to be there too. No matter what individuals behind the scenes know, part of consistency and the whole point of such independence is that it is accepted across the political spectrum and in the country as a whole. If that is not the case, the organisation does not have the credibility that the reform creating it sought to establish. That is why I look to Robert Chote, who has moved out lock, stock and barrel from the Treasury, to begin to establish that reputation.
Justine Greening
It is only right that I should put on record the comments of Sir Alan Budd, in his report on the progress of the interim OBR, on the issues that the hon. Lady has raised—budget forecasts and interference. On the fact that some Treasury officials perform both roles of giving advice to the Chancellor and helping the OBR to produce the forecasts, he clearly said in paragraph 31:
“We do not believe that this involved any conflict of interest.”
In relation to how the OBR should operate and the issuing of forecasts, he said in paragraph 44:
“We are also able to state, without reservation, that there was no ministerial involvement in the forecasts at any stage.”
The hon. Lady uses Alan Budd as an example of someone who was somehow manipulated, but does she accept that his comments do not bear that out? Perhaps she would like to withdraw her comments.
Ms Eagle
This concerns those who allowed the bringing forward of estimates of job losses caused by the Government’s decisions on fiscal consolidation, which happened to be published just ahead of a Prime Minister’s Question Time at which that was to be a point at issue. Clearly, the relevant people should have realised the effect that that coincidence would have on the OBR’s reputation for independence when it had only just been set up.
On the Minister’s point about whether the OBR should use Treasury forecasters, Lars Calmfors, the chair of the Swedish fiscal policy council, has contrasted the arrangements in the Bill with those in Sweden. He said that it is very difficult when the OBR is working very closely with Treasury civil servants and other forecasters:
“one cannot have it both ways—the OBR cannot be both an independent watchdog and an in-house provider of input into the Treasury’s work.”
We shall certainly want to explore in greater depth in Committee that aspect of the arrangements for our OBR, which differs from the Swedish arrangements.
In addition to concerns about independence, we want to raise in Committee issues of the OBR’s accountability to Parliament. We wish to explore how independent the OBR will really be, given that close co-operation with the Treasury will be needed to access the information to generate the forecast in the first place. There is also the issue of its budget—I accept the comments that the Minister made about the transparent five-year budgeting process, but there are examples of similar bodies in other countries having had their budget cut as a result of displeasing the Government with whom they were working. The governance arrangements will need further scrutiny, as will issues of accountability, not just in relation to the Treasury Committee veto on appointments, but regarding the OBR’s accountability to Parliament.
Although the Bill is about who makes forecasts, the reality is that independent forecasting is no substitute for sound Budget judgements. The Government will not be judged on the accuracy of their forecasts, but they will be held to account for the consequences of the choices they have made in the circumstances they were confronted with and the forecast that the OBR had given them. Our dispute is with the Government’s plans and choices, not with the independence of their forecasting machinery.
When we left office, unemployment was falling, growth was forecast to be 2.3% this year, inflation was lower than it is now and was falling and, according to the OBR, borrowing had come in at £20 billion lower than had been forecast in 2009. When the previous Government delivered their last Budget in March 2010, UK growth was faster than in Germany, Italy and the eurozone as a whole, but the current Chancellor has chosen to prioritise rapid deficit reduction over any other policy goal and he has slammed the brakes on growth. Without an electoral mandate, the Government have chosen to launch a risky experiment with our economy and our prosperity.
Justine Greening
I completely disagree with much of what the hon. Lady says, not least given that her Government left unemployment 400,000 higher. She mentions electoral mandate, but surely she does not think that the previous Prime Minister had one, because he was never voted in as Prime Minister.
Ms Eagle
We do not have a presidential system: we have a prime ministerial system and the leader of the governing party tends to be asked by Her Majesty the Queen to form the Government. That is what has always happened, and if the Minister wishes to change that, perhaps we need to take an even wider look at our constitutional arrangements than that planned by the Deputy Prime Minister.
Ms Eagle
Yes, but the Bank of England will also forecast for its own use growth and other aspects which it needs to assess in formulating monetary policy.
OBR forecasts predict that by the end of this Parliament, 110,000 more people will be on the dole under the Government’s plans, compared with our previous plans. Under Labour, the economy was forecast to grow by 2.6%, compared with only 2.1% under the current Government’s plans. The consumer prices index would have been at 1.6%, rather than 2.8%. So the OBR has decided that there would have been higher growth, more jobs and lower inflation under Labour.
Justine Greening
May I ask the hon. Lady a straightforward question? The Office for Budget Responsibility assesses that we have a greater than 50% likelihood of hitting our fiscal mandate, which is to eliminate the structural deficit by 2014-15 and achieve our broader fiscal mandate on debt ratio. Does she welcome that or not?
Ms Eagle
It is important to see what the forecasts are and what they mean at this stage of economic recovery. Of course I want to see the economy recover and grow, unemployment coming down and inflation being controlled. Unfortunately, that is not what the signs that we have been picking up since the Government’s decision to cut so deep and so fast tell us about the real economy. We will see as time goes on how the OBR adjusts its forecasts to take account of the monthly and quarterly statistics from the Office for National Statistics.
The shock GDP figures before Christmas strongly imply that the Chancellor will suffer the embarrassment of his growth forecasts being downgraded by the OBR in his self-proclaimed Budget for growth, which is due to be unveiled next month. We will wait and see.
We on the Labour Benches support a genuinely independent OBR but, as I said, we will explore in Committee the practical extent of that independence and suggest amendments to the Bill to shore it up a little more. We will need to explore the viability of the arrangements to produce, rather than comment on, the fiscal forecasts, as many other fiscal councils do. We will need to explore the extent of the OBR’s remit and whether the close co-operation with civil servants required to produce the forecast will lead to behind-the-scenes negotiations that will compromise at least the perception of independence.
Let us be under no illusion that the existence of the OBR, which we support in principle, can in any way protect us from the misjudgments of the present Chancellor or any other. The OBR must assume, as the Minister said, that the Government’s plans are a given. It cannot comment on the fiscal mandate or on wider fiscal policy in general. It is prevented from doing so. All it can do is calculate the probability of the Government being able to achieve their stated plans. The OBR therefore cannot protect the country from the mistakes that the Chancellor makes, or from the mistakes that he has made already. It is no panacea and it should not be regarded as one. Our dispute—
Kerry McCarthy
I knew it began with a W. Anyway, she is probably very familiar with this quote:
“The only function of economic forecasting is to make astrology look respectable.”
The hon. Member for Macclesfield said that he was not a great fan of J. K. Galbraith. I happen to be a great fan, although I had not heard that quote before. His “A Short History of Financial Euphoria” ought to be required reading for anyone who takes up a job in the City these days. The hon. Gentleman resisted the temptation to resort to political point scoring. His point that the OBR can in time become a respected and trusted reference point is valid—I certainly hope it will be achieved.
What the hon. Member for Macclesfield said about greater powers being given to the Treasury Committee was interesting. I was a member of the Committee for a couple of years when first elected to Parliament in 2005, and I remember spending many sittings seeking assurances from the Financial Services Authority and the Bank of England about regulation, the risks that derivatives trading imposed, and so on. I remember receiving blithe assurances that it was difficult for Committee members— with their limited resources—to challenge on an ongoing basis. If increased powers are given to the Treasury Committee to vet appointments, to scrutinise the work of the OBR, particularly its funding, and to ensure that it has the necessary resources to do its job, thought needs to be given to whether the Committee has the resources necessary to do that job.
The hon. Member for Bristol West (Stephen Williams) slightly lost me at the beginning with his talk about Disraeli and fridge magnets, but then moved on to talk about Bank of England independence, which he claimed was a Liberal Democrat manifesto—
Kerry McCarthy
I am not denying it. The hon. Member for Bristol West said that it was an example of Liberal Democrat manifesto policy being implemented 13 years before they got into government. I would suggest that the reason he is claiming credit for that is that there are very few examples of that now that they are in government.
Let me move on to the Bill. The plans for the National Audit Office have received very little attention in this debate, because there is a general consensus that they are the right thing to do. They are almost exactly in line with our plans for the National Audit Office that we set out in our Constitutional Reform and Governance Bill, which we did not get through the parliamentary process before the May 2010 election was called.
We support the creation of the Office for Budget Responsibility, which we see as continuing the direction of travel that we set in government by giving independence to the Bank of England and the Office for National Statistics. However, we have a number of concerns about the details of the proposals. We welcome the amendments that were introduced in the other place—with some, limited success—to try to make the OBR more independent from the Government, for example by giving it budgetary independence, so that we can be sure that it has the resources that it needs to do its job and produce genuinely independent forecasts without being compromised by Treasury control. We intend to explore that further in Committee, to see whether we can give the OBR greater independence. It is also important to explore in Committee how we make the OBR more accountable to Parliament, rather than to the Treasury.
However, we will not let this Government hide behind the OBR or use its independence as a shield to protect them from valid criticism of the impact of their economic policies. The Government are wrong if they believe that the OBR will protect us from the consequences of the Chancellor’s misjudgments. Indeed, the OBR will help to hold the light up to the Government’s record. It is notable that the OBR has already predicted that unemployment will be higher under this Government than under Labour plans, that growth will be lower under this Government, and that consumer prices index inflation will be higher. In fact, as has been mentioned—I think by my hon. Friend the Member for Glasgow North East, or perhaps by my hon. Friend the Member for Wirral South—the OBR has already had to revise its growth forecast downwards twice, down from 2.6% to 2.3% after the emergency Budget, and down again, to 2.1%, after the spending review. That is a telling verdict on this Government’s policies for growth—or lack of them—and the Chancellor’s failure to produce a growth plan. We wait to see whether the March Budget will force the OBR to downgrade its growth forecast yet again.
The OBR has also confirmed—although the Government seem to have ignored this because it is politically inconvenient for them to acknowledge it—that the deficit was more than £20 billion lower in 2009-10 than expected, owing to firm and decisive action taken by the Labour Government. What is clear—we do not need the OBR to tell us this—is that under this Government unemployment and inflation are rising, living standards are falling and the recovery has stalled. Although we support the substance of this Bill to a large extent and we shall not seek to push its Second Reading to a vote this evening, we remain deeply sceptical about whether the Government have learnt any lessons from the past eight months during which the shadow OBR has been in place. We hope that lessons will be learnt going forward.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had an interesting debate and it would be fair to say that there has been some consensus from both sides of the House that it is right and proper for us to establish the Office for Budget Responsibility. I am grateful to my hon. Friends the Members for Cities of London and Westminster (Mr Field), for Elmet and Rothwell (Alec Shelbrooke), for Macclesfield (David Rutley) and for Bristol West (Stephen Williams) for expressing their concerns about the state of the public finances and the record of the previous Government. However, I am also grateful for the comments of Opposition Members, such as the hon. Members for Glasgow North East (Mr Bain), for Wirral South (Alison McGovern), for Stretford and Urmston (Kate Green) and for Edinburgh East (Sheila Gilmore), who supported the concept of the Office for Budget Responsibility.
As my hon. Friend the Economic Secretary to the Treasury said at the start of this afternoon’s proceedings, fiscal responsibility is the overriding priority of this Government. The deficit that we inherited, the debts that the previous Government amassed and the fiscal forecasts that accompanied both have clearly shown the inherent weaknesses that plagued the old way of doing things. The reputation of the Government’s forecasts in recent years was that they had a bias towards optimism. After all, a balanced budget was always just around the corner. In 2003, the budget would be back in balance by 2005. In 2004, it would be back in balance by 2007, and in 2006, by 2008. In 2007 we would have a balanced budget by 2009, and in 2008, we would reach the balanced budget in 2011. It is perhaps apposite to quote Robert Chote in his previous capacity as the man in charge of the Institute for Fiscal Studies, who said that this was a
“sustained display of conviction forecasting”.
Indeed, the over-optimistic approach to the public finances of that era is not purely a thing of the past. We recently learned, for example, that the shadow Chancellor continues to believe that there was no structural deficit in the UK economy in advance of the credit crunch. How wrong can one be? The fact is that there was a perception that, all too often, the temptation to nudge up a growth forecast here or reduce a borrowing number there proved all too great. Governments would preach the principle of prudence while in reality the onus was always on optimism. That serves no one’s interests. Economic policy needs to be based upon the reality—grounded in fact and not fallacy—and to be able to stand up to external scrutiny when put under the spotlight. Credibility must be restored.
It is worth pointing out that the previous Government attempted to do just that with the notorious Fiscal Responsibility Act 2010. I looked up what Chris Mullin, the former Member for Sunderland, South, said about it in his diaries. In his entry for 5 January 2010, he writes that he came into the Chamber to listen to the debate, describing the proposal as:
“Surely the most pointless piece of legislation ever devised.”
He continued:
“To be fair to Alistair”—
the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling)—
“this is not his doing. It shows every sign of having been dreamed up in the fun factory at Number 10. He managed to keep a straight face throughout as George Osborne shredded it mercilessly.”
We have come up with something somewhat better, because we need to demonstrate to the British people that the Government can be relied upon to tax and spend sensibly. The Office for Budget Responsibility will do exactly that. This fully independent body is bringing integrity back to the official forecasts. With full access to all the data, assumptions and economic models needed, the OBR is making the key judgments that underpin our economic and fiscal decisions.
Let me touch on the issue of independence, which a number of hon. Members raised. It is right that the OBR has access to all the numbers. We believe that the relationship with the Government strikes the right balance. The OBR will perform a core executive function in providing the official forecasts and a published assessment of the likelihood of the Government’s meeting their fiscal mandate, but it will do so independently of Ministers, with all judgments and methodology questions being at the complete discretion of the budgetary responsibility committee. That model has been supported by a range of external commentators, including the Institute for Fiscal Studies. It is also worth noting that Lord Turnbull said on Second Reading in the other place:
“What is proposed is a pragmatic and, in my view, well judged hybrid”.—[Official Report, House of Lords, 8 November 2010; Vol. 722, c. 22.]
The OBR will appoint its own staff and will have a budget responsibility committee confirmed by the Select Committee on the Treasury. That process of confirmation will ensure that the right staff are appointed to the BRC. The non-executives will be required to report regularly on the extent to which the OBR has been able to perform its duties, with complete discretion through the annual report. That is an important safeguard for the OBR.
Let me touch on Parliament’s role, which was raised by the hon. Member for Wirral South and my hon. Friend the Member for Macclesfield, who is a member of the Treasury Committee. The OBR will submit all its findings to Parliament, with each forecast and report being laid before the House, as was the case for the economic and fiscal outlook produced by the OBR in November. To ensure accountability, any written questions from hon. Members will be passed directly to the OBR, which will respond in the usual manner. All members of the budget responsibility committee, as well as the OBR’s non-executive directors, will also be available for Select Committee hearings. The evidence that OBR representatives have already given to the Treasury Select Committee has been widely welcomed by hon. Members.
I want briefly to mention the National Audit Office. As we have heard, the measures in the Bill largely reflect the provisions in the previous Government’s Constitutional Reform and Governance Bill. There was no time for the other place to consider those provisions before the general election, and this Bill represents the earliest opportunity to bring them before Parliament and to implement the recommendations of the Public Accounts Commission following its review of the National Audit Office’s corporate governance. This, too, has been welcomed on both sides of the House.
The provisions in the Bill will restore confidence and responsibility to our country’s fiscal framework. For too long, there was suspicion about the reputation of the forecasts produced by the Treasury: to put it kindly, they were suspected of optimism. What we now need is stronger institutions. We need to allow for expert scrutiny of the public accounts. We need improved economic governance, and much-improved transparency, and this Government are taking great steps towards achieving that. This is the right course of action for our economy, and for our country. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Budget responsibility and national audit Bill [Lords] (programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Budget Responsibility and National Audit Bill [Lords]:
Committal
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 8 March 2011.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
7. Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Stephen Crabb.)
Question agreed to.
Budget responsibility and national audit Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Budget Responsibility and National Audit Bill [Lords], it is expedient to authorise—
(1) the payment out of money provided by Parliament of any expenditure incurred by the Treasury or the National Audit Office in consequence of the Act, and
(2) the payment out of the Consolidated Fund of—
(a) amounts payable in accordance with remuneration arrangements made in relation to the Comptroller and Auditor General and the person who chairs the National Audit Office, and
(b) amounts payable in consequence of liability for breach of duty in relation to audits, examinations and inspections carried out as part of the Comptroller and Auditor General’s functions.—(Stephen Crabb.)
Question agreed to.
Budget responsibility and national audit Bill [Lords] (Ways and means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Budget Responsibility and National Audit Bill [Lords], it is expedient to authorise—
(1) the imposition of charges to corporation tax in relation to transfers of property, rights and liabilities, and
(2) the payment of sums into the Consolidated Fund.—(Stephen Crabb.)
Question agreed to.