Financial Services Bill

Debate between Lord Burns and Lord Sassoon

Tuesday 26th June 2012 Lords Chamber

[Lord Burns]

My Lords, I agree with the noble Baroness, Lady Liddell, that the Bank of England needs a modern and transparent form of governance, the best governance that it can have. I also agree with the noble Lord, Lord Flight, that the form of governance that is best known in this country and is best practice is a unitary board—a board that consists of a majority of non-executive directors. It also consists of executive directors with a non-executive chairman. The present structure of the court seems to me very close to that. We may not like its name, but in terms of structure, it seems it could very easily be turned into such a body. The issue is not what its name is or even the composition of it; it is to do with the powers that the court has.

It has been mentioned that the court has many of the powers that a normal board would be expected to have. Some of those powers that it does not practise at present are contained in the amendment that the noble Lord, Lord Sassoon, will move later today to do with dealing with issues of oversight of policy in the past and the extent to which that should be done.

I would hope that we could retain the present structure of the court. As I said, whether the name should be changed is a matter of taste, but we should concentrate on the powers of that court and the extent to which the powers that it needs to operate as a normal board are contained in some of the other amendments being put forward. Certainly, as I interpret some of those that we have seen already, it begins to come quite close to what I would expect to be a modern, transparent and very good form of governance.

[Lord Sassoon]

My Lords, it has been an interesting 45 minutes. I really thought that this group of amendments was going to be, in cricketing terms, a loosener from the opening fast bowler from the Opposition Benches, instead of which I have been faced with a number of bouncers and, I dare say, a couple of wide balls on the way through.

I will not respond to all of what I might term the Second Reading points that have been reiterated. I answered all the substantive points at Second Reading and would refer noble Lords back to those debates. I also will not be tempted into discussing clauses yet to come. In answer to my noble friend Lord Eccles about what “micro” means—

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[Lord Sassoon]

I think that is wrong. It is not the Court of Directors that becomes the oversight committee; the Court of Directors remains the Court of Directors. It is effectively the committee of non-executive directors, or NEDCo, of the Bank, which becomes the oversight committee. The court remains the court. So there may be some misunderstanding of who is doing what here, but the Court of Directors must indeed keep the procedures of the FPC under review, which will be principally done through the oversight committee, which is a committee of the court.

[Lord Burns]

The references here to the Court of Directors of the Bank in new Section 9B(1) says:

“There is to be a sub-committee of the court of directors of the Bank”.

When it says Court of Directors in that case does it mean the whole court? Earlier we were being told that “directors” simply means the non-executive directors and that the governors are not counted as being directors of the court. That seems to be part of the problem that is causing this ambiguity.

[Lord Sassoon]

Let me try again. The court of the Bank, which is the executives and non-executives, must keep the procedures under review. The non-executives through the oversight committee have a remit and function that includes procedures but goes wider and is able to review the performance of the Bank and the FPC against its objectives in the full wide way that I believe the noble Lord, Lord Eatwell, is asking for it to do—and I am confirming that it does.

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[Lord Burns]

For clarification, when it says the Court of Directors, does that mean the whole court or does it mean only the non-executives?

[Lord Sassoon]

Court means the whole court, and that is in relation to the procedures. The oversight committee has the function and ability to look not only at the procedures but also at the question of whether the objectives of the Bank and the FPC are being met.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Burns and Lord Sassoon

Monday 6th December 2010 Grand Committee

[Lord Burns]

My Lords, I support the remarks of the noble Lord, Lord Newby. The noble Lord, Lord Myners, knows that what he is asking for is impossible; we also know that he can be very good at creating a little bit of mischief every now and again and we have to see this amendment in that light.

The OBR can be responsible only for its own documents; it cannot possibly hold the Chancellor to account. That is a job for Parliament, including the Treasury Committee and the Economic Affairs Committee. I can think of nothing that would make the job of the OBR more impossible than to give it a task that began to resemble this. The key thing is that the OBR has to be kept out of the political debate but the noble Lord, Lord Myners, implies that he would like to plunge it directly into that debate. I am sure he has used the amendment as a vehicle to make quite sensible points about some of the practices that occur from time to time, but the OBR will not protect us from those.

[Lord Sassoon]

My Lords, the noble Lord, Lord Myners, accused himself of being churlish. The noble Lord, Lord Burns, accused him merely of creating mischief. I offer no view, but agree completely with the noble Lord, Lord Burns, and with my noble friend Lord Newby, that his amendment would widen the OBR’s remit into completely inappropriate and vastly different territory from that covered by the Bill. The very focused remit in the Bill covers forecasts and the sustainability of the fiscal position. I noted that the noble Lord, Lord Myners, talked about the OBR commenting on the presentation of its report by the Chancellor—which would be difficult, for the reasons given by the noble Lord, Lord Burns—but his amendment goes much wider and is concerned with commenting on major economic statements, which covers a huge range of things well beyond the OBR's focus. I come back to the concerns that were expressed by noble Lords at Second Reading about the critical importance of the impartiality of the OBR. For example, the noble Lord, Lord Eatwell, said:

“I am sure it is right that the OBR should not become embroiled in political controversy”.—[Official Report, 8/11/10; cols. 16-17.]

That is exactly where the amendment of the noble Lord, Lord Myners, would take it—well beyond the sustainability of the public finances, which should be its remit. I ask him to withdraw his amendment.

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[Lord Burns]

My Lords, for the reasons that I have set out about the importance of the political impartiality of the OBR, I felt that the original subsection (3), although a little inelegant, did much of its job. However, I also support the spirit of Amendment 31, although I am a little concerned about the use of “effects”, which could in future give someone the opportunity to ask to have particular subsections of government measures analysed for their effects on the economic outcome and on the public finances. I worry that going down that road could cause problems in future.

[Lord Sassoon]

My Lords, perhaps I might go back to confirming what we are seeking to do and not to do in the Bill. We have discussed all these related issues at some length. The noble Lord, Lord Burns, has got it pretty much spot on in terms of what we are trying to achieve, but for the avoidance of doubt I shall restate it.

With regard to the core forecasting remit, the intention is that the OBR should consider government policies and not other policies. To take the point made the other day by the noble Lord, Lord Eatwell, we want to ensure that the OBR can take account of external shocks, for example, so in technical drafting terms his amendment would not quite work as it focuses narrowly on policy. We agree, anyway, that it is the Government’s policies and not other policies that need to be considered. We must not leave out the fact that, in doing the forecasts, the OBR can look at scenarios and at other issues.

With regard to the noble Lord’s specific question about an EU-related policy, either it has been adopted by the UK Government and is therefore included in government policies or it is not. Either the EU policy example has been adopted as policy in the UK or it has not, therefore it falls accordingly. That would get picked up, so that much is clear. Equally, it is the clear intention that the OBR should not be drawn into costing alternative policies, whether they are opposition policies or just other scenarios or partial packages of policies. That is what is intended by the construct in the Bill, and part of it is clarified by paragraph 4.12 in the draft charter.

Even though I am convinced that the Bill achieves what most, if not all, of us are trying to achieve in these various respects, I take to heart the fact that we have spent a lot of time going around the interaction of Clauses 4 and 5(3) and, to an extent, the relationship with Clause 1. Notwithstanding the fact that I think that the Bill works as drafted, I am listening carefully to all the points being made. I will go away and see whether anything can be done to make it even clearer in the Bill what the intentions are. However, it is difficult drafting. We should certainly not take out Clause 5(3) in its entirety, because, as the noble Lord, Lord Burns, pointed out, we want to make sure not only that the forecasts are concentrated on the right thing but that the OBR is not drawn into other political controversies.

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[Lord Sassoon]

I assume that in all normal circumstances it will look intently at the forecasts of the MPC about future inflation and interest rate prospects.

[Lord Burns]

Perhaps I may help the noble Lord, Lord Peston. One must assume that the Monetary Policy Committee will abide by the law under which it conducts its affairs.

[Lord Sassoon]

In summary, I cannot promise that there is any way of making all this clearer. I think that there is consensus among us as to what we are trying to achieve in this area. I shall think hard about whether we can make it even clearer. On that basis, I ask my noble friend Lord Higgins to consider withdrawing his amendment.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Burns and Lord Sassoon

Wednesday 1st December 2010 Grand Committee

[Lord Burns]

My Lords, I support the spirit of this amendment for the reasons put forward by the noble Lord, Lord Eatwell. I am sure that no problems with the budget will arise during the early years of the existence of this body. Indeed, it has probably already been agreed in the present expenditure round. But if we are going to safeguard the OBR into the future, it is necessary to have a system of public accountability and the opportunity for the executive members and perhaps the non-executives to be questioned by the Treasury Select Committee whether they think the resources being made available to them are sufficient to do the job. On this occasion, I disagree with the noble Lord, Lord Higgins, because this is an issue that falls to the Treasury Select Committee as the body with oversight of the extent to which the OBR is doing its job effectively.

In most cases I suspect that these issues would arise naturally, without having to include them in the Bill, so I shall listen carefully to what the noble Lord, Lord Sassoon, has to say in reply. As I said, however, the spirit that is captured in the amendment is an important safeguard in terms of the future of the OBR. That is because in five or 10 years’ time, the circumstances surrounding the body may be very different.

[Lord Sassoon]

My Lords, let me see if I can help by making clear what is actually going on and what is intended here. The first point to bear in mind is that HM Treasury is not incentivised to underfund the OBR because it will be relying on the office to produce the official forecasts. We need to bear it in mind that the OBR provides a critically important component to feed into the Treasury’s economic and fiscal policy-making. I am not sure what the circumstances could be in which the Treasury would want to starve the OBR of funds because it provides such a critical service to the Treasury itself.

The second point is this. Noble Lords may not have seen it, but the funding has been put in place not for one year but is committed through the spending round period from 2011-12 through to 2014-15. The spending letter from Sir Nicholas Macpherson, the Permanent Secretary to the Treasury, has been published by the OBR. It makes it clear that the funding allocation is £1.75 million per year flat cash at a time when the Treasury group settlement is minus 33 per cent. The position for the next few years is clear. Sir Nicholas goes on to say in his letter:

“Should you find that you are unable to manage within the constraints of this allocation, please raise this with me at the earliest opportunity”.

So the initial funding is in place with an open invitation—which, as I have said, is very much in the interests of the Treasury—to the OBR to raise any matters of any potential underfunding. Robert Chote himself highlighted the importance of the OBR’s funding position when talking to the Treasury Select Committee:

“If you accede to my appointment and I find myself being squeezed in that way, this Committee will be hearing about it very promptly. That’s how we make that public and ensure that those sorts of pressures do not go unremarked”.

He is clear in the substance about where he would immediately go.

There are a number of specific safeguards in the legislation that go further. Schedule 1, which provides for the funding arrangements, ensures that the OBR’s independence and effectiveness will be protected. There will be a separate line for the OBR in the Treasury Estimate and the body will produce its own accounts which will be laid before Parliament. Furthermore, it will be able to submit an additional memorandum alongside that of the Treasury, which will be submitted to the Treasury Select Committee.

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[Lord Burns]

My Lords, I have been struggling with this debate. I have had difficulty in seeing where it was going. When I looked at the amendment of the noble Lord, Lord Eatwell, I thought, “Surely everyone assumes that that is the way that it will be done in any case”. In that sense, I am not sure what the amendment adds because I do not understand what the counterfactual position would be if the OBR tried to do an analysis of sustainability that was not in the light of the Government’s economic policy. To the extent that the amendment would clarify a situation if there were any real doubt about whether that would be the position, then I can see that it has merit.

I am not contradicting what the noble Lord says about how this should be done. I would expect the OBR to do it in that way, largely because I cannot see how it would do it in any other way; it would be rather limited. My assumption is that the response to this will be, “It isn’t necessary because everyone would assume that this was the way that it would be done”. I agree with everything that the noble Lord has said about how one would hope that this would be done; my only question is whether the amendment is necessary.

On the question of how far one wants to spell out the issue of sustainability, my preference would be to leave the OBR to give its own definition and present its own analysis. It would then be up to others to question whether it had done that correctly, whether it had missed out something in its definition of “sustainability” or whether the analysis was too narrow and should have been broadened. That could easily be a subject for debate after the OBR had presented its report, and no doubt it would then be taken into account when it made its next report.

If we follow much of the debate that has gone on, and if we are setting up something that we hope will last a long time, I am conscious of the fact that there are not many aspects of economic policy that remain unchanged for long periods of time. People’s interpretations of words and policies move over time. I would be cautious about trying to be too specific about what we mean by “sustainability”. In the broadest sense we understand what it means but, if circumstances were to arise that required a different definition or we had to assume that the Government would react in some way in future to certain types of events and that were to be built into the analysis, that could be done.

I find myself agreeing with the amendment, but I question whether it is necessary or whether it would not be assumed that what it suggests would already be the case.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Burns. I think that he gets it right. I am sympathetic to the underlying concern of the noble Lord, Lord Eatwell, to try to solve a problem. The analysis of sustainability—the main duty of the office—has to have regard to, and be in the light of, the Government’s economic policy, so I do not think that there is any other way of doing it. Of course we must get the technical drafting right on this. In so far as there is any potential problem, we need to get it right.

I sometimes find the drafting of these things a bit obtuse, but I am advised by the experts on how these things are drafted that Clause 5(3) deals with the issue that the amendment is intended to remedy. That subsection states:

“Where any Government policies are relevant to the performance of that duty, the Office may not consider what the effect of any alternative policies would be”.

[Lord Sassoon]

It seems to deal with what should be excluded rather than what should be included. Due to the way that legislation is constructed, however, I am told that by referring to what should not be considered, the link to what should be considered is there by implication and hard-wired into Clause 5, which is the critical provision on how the main duty is to be performed. I am advised by the experts on these matters that we have in the Bill what is technically necessary to make the link through to the Government’s economic policy. Further to that, we have to be careful—this very much relates to the point made by the noble Lord, Lord Burns—because there are a lot of other matters in here that may come and go, to which the main duty of must have regard. Yes, it relates to economic policy, but what about the Government’s taxation and expenditure policies? What about the potential for the impact of external shocks? There is a danger here that if we agreed to the amendment, it would boilerplate the importance of the duty being carried out,

“in the light of the Government’s economic policy”.

I agree with the noble Lord, Lord Burns; how could it be any other way?

[Lord Burns]

I had assumed that the term “economic policy” encompassed all of the things that the Minister has just mentioned—taxation policy, expenditure policy, pensions policy or anything that would affect the public finances in one way or another.

[Lord Sassoon]

Again, I am advised that the drafting of the amendment would not necessarily achieve that end. If we include “in the light of economic policies”, even if it was widely interpreted, does that mean we should refer also to other aspects of sustainability, such as, for example, the impact of external shocks? I believe that the subsection works, even as drafted. We absolutely agree with both noble Lords in terms of what we expect to be taken into account, but we do not consider that the amendment will help. Its drafting does not do the trick and, I am advised, aims at something which is not necessary because we have it in Clause 5(3).

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[Lord Burns]

There is an issue with the drafting of Clause 5 and I wonder whether we are trying to make subsection (3) work too hard for its living. I had assumed that it was there to make sure that the OBR did not get dragged into a political debate and would not be called upon by anyone to cost opposition policies—which, as we know, has become a bit of a habit over the past 25 years—or by a Select Committee to insist that it compared the outcome of the Government’s policies with that of another set of policies. That would inevitably draw the OBR into a political debate. I had assumed that that was the purpose of this subsection, and it may be working it too hard to say that it should also do the job suggested by the noble Lord, Lord Eatwell. I think that the noble Lord, Lord Newby, has captured the spirit of what a number of us have been concerned about.

[Lord Sassoon]

We are all trying to get to the same end. I do not think that this is a rerun of what we were talking about under Clause 1 on the charter for budget responsibility. If it were, I would not carry on with a sympathetic tone. If it is trying to reopen—