Budget Responsibility and National Audit Bill [HL]

Baroness Noakes Excerpts

Monday 29th November 2010 Grand Committee

[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.

[Baroness Noakes]

My Lords—

[Lord Barnett]

The Minister asked us to withdraw our amendments, so I hope that the noble Baroness will forgive me if I reply.

I had hoped that the noble Lord, Lord Sassoon, on this occasion in Committee, when we have tabled serious amendments, would give us a good reason for withdrawing them. I have listened carefully. Neither my noble friend Lord Eatwell nor my noble friend Lord Peston had taken umbrage at the Government’s economic policy and what they seek to deliver—much as my noble friends and I might disagree with the Government. We were putting serious amendments, which it seems from all that the Minister said there is no good reason for rejecting. I can see nothing in the amendments that should cause the Government any problem.

Our amendment relates to the Bank of England Act, which the Government have accepted and are not seeking to amend, whatever they eventually put in the charter. The Minister was not with us when we debated these matters at length. The three words “subject to that” not just implied but provided a clear remit to the Monetary Policy Committee. I am not sure that it always carried out that remit very well or very carefully, or even, as the current governor has recently been saying, that the Monetary Policy Committee was allowed to discuss these things—a report of something that he said implied that he did not want the Monetary Policy Committee to discuss them.

All we are saying, and all my noble friend Lord Eatwell is saying, is that these words should be inserted. I do not recall either of my noble friends taking umbrage at any of the policies that the Government are proposing. That is not the purpose of Committee stage; its purpose is to have a serious discussion about whether an amendment should be accepted. I had hoped that the Minister would look at this first group of amendments more seriously, unlike with his Answers in the Chamber or to our Written Questions, which he seems not to take very seriously. On this occasion, at the start of the Committee stage, I had hoped that he would take it seriously before asking us to withdraw an amendment that has been put down very seriously without any party-political talk. He has not given me any good reason to withdraw it.

[Baroness Noakes]

I have been listening to what my noble friend has been saying. He seems to be saying that we cannot have the words relating to economic policy because we want this to relate to fiscal policy only. If we step back, it seems to me that the economic policy of the Government ought to be as capable as the fiscal policy of being subjected to the transparency objectives that the Government have set out. Indeed, one of the things that the Government are to be genuinely lauded on is their approach to transparency, not only in relation to the Office for Budget Responsibility but also, for example, in relation to the publication of expenditure amounts over £25,000.

Transparency has been one of the watchwords of our Government, but we come to the Bill and, for some reason, we are saying that the Office for Budget Responsibility will be required to look at our fiscal policy mandate only, not at our economic policy objectives. It seems to me that there is a transparency deficit if we are saying that we have to exclude economic policy, as it seems directly related to what the OBR will be doing. The only reason that my noble friend has given is that the Government have decided not to include it. Like other noble Lords, I am struggling for the rationale for excluding the Government’s economic policy.

[Lord Peston]

Before the Minister rises, I shall raise a point of order. I was under the impression that, when we meet in Grand Committee, we do not divide the Committee at all, so withdrawing amendments is totally irrelevant. I have no intention of withdrawing my amendments, but I am not going to divide on them. Rather like the noble Baroness, Lady Noakes, I want to hear the Minister give some reasoned answers including that he would like to think about it a bit more. He does not have to agree with us, but I thought that the whole point of meeting in Grand Committee was to behave non-politically, if I may say so, and co-operatively to clarify the Bill in order to make progress when we go back into the Chamber, when, no doubt, we will divide the House. I am beginning to get very irritated with the repetition of “withdraw the amendment” because I do not think that we are here for that purpose. We may withdraw it formally, but that is not the point.

--- Later in debate ---

[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?

[Baroness Noakes]

If the noble Lord does not ask for the amendment to be withdrawn, it will be agreed.

[Lord Peston]

It is not the formalities that I am talking about but the style.

--- Later in debate ---

[Lord Newby]

I rise to support the noble Lord, Lord Barnett, and possibly to bring to the Minister’s attention the fact that when the Monetary Policy Committee was established, a specific committee of your Lordships’ House was established for the sole purpose of reviewing the way in which that committee worked. There can be no issue of propriety about whether the House of Lords should have a role here. This raises a broader question about the coalition’s view of the role of the House of Lords on financial and economic matters. The previous Government and the former Prime Minister were almost implacably opposed to this House having anything to do with economic affairs, which I thought was a pity because there is clearly expertise here. Last week, we discussed ways in which the House of Lords might play a part in tax policy-making. That would be very sensible as well and it would form part of the piece, along with these amendments, under which the House of Lords would have an enhanced role.

[Baroness Noakes]

My Lords, if this document is really about fiscal policy and the fiscal mandate only, it is entirely logical that the approval of the charter and the other matters referred to in the other amendments in this group should be for the other place. If it were widened to include economic policy, which most of us here, with the exception of my noble friend, favour, then it would be entirely logical for it to be widened to include the House of Lords, but I believe that, as currently drafted, it is entirely logical to confine it to the other place.

[Lord Turnbull]

I shall take issue with the noble Baroness, Lady Noakes. I think there is a distinction between the substance—fiscal policy—which it is well accepted is a privilege matter for the House of Commons, and what we are talking about—the governance structure of policy—which is, in a sense, a quasi-constitutional issue. We are talking about the charter, not fiscal policy. This is an area in which the House of Lords has some expertise. Therefore, I conclude exactly the opposite—that the charter should be rightly within the purview of the House of Lords, even when the fiscal policy is not.

--- Later in debate ---

[Baroness Noakes]

My Lords, I do not like to be in disagreement with the noble Lord, Lord Turnbull, as I seem to be on all things today, but this is wrong. We are allowed to look at finance Bills and the Clerk of the Parliaments has said that we can look at fiscal matters. We are allowed to examine and report on finance Bills but we have no right to influence the outcome. We have no vote on it and it is for the committee in this House to ensure that it produces something in good time for the other place to take it into account. That does not have to be written into law.

To take the issue of the charter, it is obviously available in draft. There is nothing to stop the Economic Affairs Committee of your Lordships’ House from taking a view, but it is the responsibility of that committee to make sure that it produces its report in good time for it to be considered by the other place before any decision is made. Any decisions are the competence of the other place and it is not normal to write in a consultation between your Lordships’ House and the other place.

--- Later in debate ---

[Lord Newby]

I almost agree with the noble Lord, Lord Turnbull, but it would strike me as slightly odd if at this stage, when the office is being established as the definitive independent forecaster on which the Government are going to base their actions, the Government retained the right the disagree with the OBR and carry on as though it did not exist. In terms of the central forecast, it would be a bit like having a dog and barking yourself. Perhaps the Minister can give us an example of a circumstance in which the Government envisage they might invoke that right.

[Baroness Noakes]

I do not quite agree with my noble friend Lord Higgins on this. In particular, the prohibition in Amendment 7 on the Treasury making economic forecasts does not appear realistic. I know that we are concerned that there will be a recreation of the functionality that has now been transferred from the Treasury to the OBR, but the plain fact is that the Treasury has to consider whether to accept the forecasts. It may wish to disagree and, if it cannot do its own forecasts, how is it going to deal with that position? This is a very difficult area but I do not think that it would be right to legislate in this way.

My noble friend’s Amendment 38 made me look at Clause 8. This is a small point but I should be grateful for my noble friend’s comments. He suggested that the OBR need not send a copy of its report to the Treasury. Can he explain how this quango lays a document before Parliament? Does it not normally go through a government department to Parliament? It was always my understanding that documents were laid via Ministers, although I may be wrong.

[Lord Higgins]

Perhaps I may intervene for a moment before the Minister replies. Amendment 21 suggests that there should be a discussion between the Bank and the Treasury to agree the forecast. The noble Lord, Lord Turnbull, says that we want competition and so there may be two separate forecasts. That is fine but the two ought to be reconcilable, and in any event there should ultimately be a set of agreed forecasts which form the basis for the Government taking action. I do not think that you can have one set of policies on the monetary side being made on the basis of one forecast and fiscal decisions being made on the other. So far as concerns the point made by my noble friend Lady Noakes, it seems that the whole object of this exercise is to say that the Treasury shall not have its own forecasts and that the forecasts should be independent. However, I look forward to hearing what the Minister has to say.

Budget Responsibility and National Audit Bill [HL]

Baroness Noakes Excerpts

Monday 8th November 2010 Lords Chamber

[Baroness Noakes]

My Lords, the Bill before us this afternoon is really two Bills dealing with the quite separate matters of the Office for Budget Responsibility and the national audit arrangements. The only thing that they have in common is their Treasury parentage, which in times past would not have been a good enough reason to have had only one Bill. I merely remark that it is a pity that the current Government have adopted the bad legislative habits of their predecessors.

Let me start with the OBR provisions. The OBR puts the UK leading the pack globally on fiscal transparency. We will now have a body that will issue independent fiscal and economic forecasts and give an independent verdict on whether the Government have achieved their fiscal mandate. I am sure that the Treasury civil servants who developed and manned the previous Treasury model over the years did an excellent job, but at the end of the day the Budget and PBR forecasts were determined by the judgments—or, as the noble Lord, Lord Turnbull, would have it, wishful thinking—of Treasury Ministers. The OBR is needed not to make the Treasury officials make better forecasts but to stop Treasury Ministers making bad ones.

In particular, I praise the formulation in Clause 5 that the duty of the OBR must be performed “objectively, transparently and impartially”. The noble Lord, Lord Eatwell, has tried to undermine that, but his criticism sounded more like sour grapes to me. When the Labour Party came to power, the then Chancellor claimed that he was committed to transparency, but I do not believe that he ever claimed to be objective or impartial—history will judge just how objective, transparent and impartial he truly was. I praise the courage of my right honourable friend Mr George Osborne in becoming the first Chancellor unambiguously to put judgments on the credibility of his economic and fiscal policies in independent hands. There will be no war of the Treasury's forecasts against those from outside the Treasury; there will be one clear, authoritative and independent judgment for the world to see.

That brings me to the first of my questions to the Minister. Another authoritative and independent voice in the land is the Bank of England, which also produces its own forecasts. Although those forecasts have a different aim—to support monetary policy—the forecasts inevitably cover much of the same territory. At present, there is a degree of co-operation between the Treasury and the Bank of England at working level, and a Treasury representative attends meetings of the Monetary Policy Committee. How is that expected to play out in future? Will there be any relationship between the OBR and the Bank of England as forecasts are developed? If so, how will this work in practice? If not, what is the Government's view of having two independent bodies that might have divergent views about the future economic path?

My second question—notice of which I have already given to my noble friend—concerns Clause 4. Clause 4(4) requires the OBR to produce two rather different reports each year, each of which seems to be similar to the reports that the Treasury has been producing since 2002. One of the required reports is to be on the sustainability of the public finances. The Treasury’s first Long-term public finance report: an analysis of fiscal sustainability in 2002 stated that the UK’s public finances are “sustainable in the long-term”, but by last year the equivalent report contained many references to challenges but no firm conclusions about sustainability. I have no doubt that, if the OBR had been in existence last year, it would have reported unambiguously that the public finances were not then on a sustainable footing.

The other report required under Clause 4(4) is rather different, as it will be an assessment of the accuracy of the OBR's own forecasts. My concern is whether it is right to give the OBR the responsibility to assess itself. Would that we had all been allowed to write our own school reports—how much easier life would have been. A parallel can be drawn with the Bank of England, which assesses itself each year on its forecasting performance. Earlier this year, the Financial Times said:

“Every August, the Bank does its own evaluation of its forecasting record and always pats itself on the back. This tiresome tradition arises since the Bank gives the forecasts extremely easy tests to pass”.

The FT's view was that,

“the Bank's forecasts are biased and have no information content at the forecasting horizon the Bank says is relevant for monetary policy”.

The Bank is judged ultimately on its monetary policy decisions and whether it delivers the inflation target set by the Chancellor rather than on the quality of its forecasts per se. However, the OBR’s core purpose will be to produce forecasts. Earlier, my noble friend reminded the House that the Treasury’s forecasting performance is poor, but that is not evident from the self-assessment that the Treasury produced each year. I hope that my noble friend will look again at whether the assessment would be better carried out by an independent person or body.

I have one final question on the OBR for my noble friend to comment upon. As other noble Lords have noted, tucked away in Schedule 1 are the detailed arrangements, which include having two members of the Office for Budget Responsibility in addition to the three with whom we are already familiar. The Explanatory Memorandum says that,

“These members … may assume the role of non-executives in the Office's governance”.

Why does the Bill not provide that they are to be non-executive members, as Schedule 2 does for the NAO’s members? I agree with the noble Lords, Lord Eatwell and Lord Newby, that their role should be better explained in the Bill. Can my noble friend also say why it is appropriate for the OBR to propose its own members? If the Government want them to be independent, why is there no independent appointments process? I have no problem with the Chancellor making the final formal appointment, but the important thing is that the process of selection must be demonstrably independent.

Lastly, my noble friend will be aware that the normal formula in the private sector is that the numbers of non-executives should be at least equal to the number of executive members. For non-departmental public bodies, it is generally provided that there is a numerical dominance of non-executives or that they are of an equivalent number, with an independent chairman. That is what Schedule 2 provides for the NAO. In the case of the OBR, there are to be three executives but only two non-executives. Can the Minister explain what model the Government are trying to create and why?

Although the majority of today's debate will focus on the OBR, we must not forget the changes that the Bill proposes to the Comptroller and Auditor-General and the National Audit Office. These clauses are a hangover from the previous Government's ill-judged Constitutional Reform and Governance Bill. I can quite see why the Government feel that it is necessary to press ahead with those reforms—not least because the substance of the restructuring has already taken place on a non-statutory basis—but I will offer a small commentary on the relevant clauses.

Before the National Audit Act 1983, there was a suspicion about the role of the Treasury in relation to the C&AG. The 1983 Act took the Treasury out of the picture, made the C&AG an officer of the House of Commons and created the Public Accounts Commission to oversee the NAO’s budget. When there was a fuss about the expenses of the C&AG more than 20 years later, the Public Accounts Commission commissioned a report from Mr John Tiner, who was then on gardening leave at the end of his service with the Financial Services Authority. Mr Tiner said that he was,

“not aware of the background to the C&AG being an officer of the House of Commons”—

that is, he did not know what he was talking about. As the Constitution Unit of University College London has pointed out, he made absolutely no assessment of the effectiveness of the Public Accounts Commission in carrying out its statutory role. Nevertheless, he concluded that the answer lay in the governance of the NAO and prescribed the usual formula of a board with a chairman and non-executive directors, which we have before us today. This was, of course, a convenient solution for those in another place to sign up to because it avoided any issues about the responsibility of the other place.

I recount that story to show how policy can be made at the highest level with relatively little real foundation. The failures of oversight of a component of the expenditure of the C&AG could have been dealt with relatively easily. Instead, the Bill will impose a costly and cumbersome superstructure of a board and non-executives. I have no criticism of the people who are undertaking those roles—they are excellent people—but do they add any real value to the process of public audit, about which there were absolutely no concerns? I doubt it. I hope that, before the Minister and his colleagues in the coalition Government pick up any more left-overs from the previous regime, they will in future examine critically whether changes are indeed necessary.

Comprehensive Spending Review

Baroness Noakes Excerpts

Wednesday 20th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, as I have reiterated, at the absolute centre of this spending review is the universal credit, which, over the next two Parliaments as we bring it in, will go to the heart of the challenge the noble Lord poses. As to the provision for disabled people, people with long-term conditions account for around 70 per cent of the NHS budget, which is the area of spending being protected above all others.

People with disabilities and social care needs will also benefit from the additional resources given to social care within the health and local government budgets. People with care needs are also being protected from the extension of the single-room rate in the housing benefits. Finally, of the measures to which I should draw the attention of the House, families where someone claims a disability living allowance will be exempt from the new cap on total household welfare payments. Care for disabled people is absolutely at the heart of this review.

[Baroness Noakes]

My Lords, my noble friend was accused by the noble Lord, Lord Eatwell, of ideology in pursuing the excellent programme that he set out in the Statement. Will he confirm that it is necessity and not ideology that has driven today? Will he further confirm that we inherited the largest deficit in the G20 and an economy where public sector productivity had gone backwards for most of the previous 13 years? We found budgets, such as defence, which were overcommitted to an extent more than the annual budget. Will my noble friend confirm that we are committed to restoring efficiency and effectiveness to public spending, which are principles that eluded the Benches opposite for the previous 13 years?

[Lord Sassoon]

I am happy to confirm the very succinct summary put forward by my noble friend Lady Noakes of what is at the heart of this spending review. Effectiveness and fairness are what we are aiming at.