Budget Responsibility and National Audit Bill [HL]

Lord Higgins Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Higgins]

My Lords, the speakers list today includes a number of the usual suspects involved in Treasury and economic affairs. I suppose I also have something of a record as chairman of the Treasury Select Committee in another place for something like a decade and a half. I therefore begin by welcoming the fact that the Treasury Select Committee is to be given an operational role in approving or consenting to the appointment of the members to the OBR. This is quite possibly the first occasion a departmentally related Select Committee has actually had such a role embodied in legislation.

First, I want to say a word or two on the matters raised by the noble Lords, Lord Myners and Lord Burns, as far as forecasts are concerned. I am also not at all sure that we will gain much by having yet another forecasting body with all the staff that involves. The Treasury already publishes an almost comprehensive list of forecasts, prepared by various government and non-government bodies, and it may be that the data in those would provide a more impartial view than those produced by the Office for Budget Responsibility.

I certainly welcome the point in the Bill which repeals the proposal of the previous Government to have the National Audit Office auditing the assumptions on which the forecasts are made. It always seemed very odd that one could audit such things as assumptions. However, it is important that the OBR, if it produces its own forecasts, should also publish its assumptions. We all know that forecasts depend crucially on what the assumptions are, and that, unless they are published, we have no basis on which to appraise the situation.

I am sad that the forecast established by the Industry Act 1975 is to go. The previous Government built, on what used to be called the Red Book, a huge paraphernalia of propaganda. Now that the forecast has gone, I presume that the present Government will have some difficulty in finding a similar opportunity. However, the forecasting situation needs to be appraised very carefully, and no doubt we will have an opportunity to do that in Committee.

The OBR will have responsibility for not only forecasts but appraising, on the basis of a fiscal mandate, the extent to which the Government are achieving their objectives. I find the concept of a charter, set out in Clause 1 of the Bill, a little devoid of content. The charter must set out objectives in relation to fiscal policy on the one hand, and secondly, the means by which they are to be achieved—the fiscal mandate. It would be immensely helpful in Committee if we could be given some idea, or perhaps a draft, of what such documents—namely, the fiscal mandate and the charter—are likely to comprise. In that context, I worry about the fact that the Treasury is to have almost complete discretion, first in creating the charter and the fiscal mandate, and then, if need be, in modifying it. There is a case for Parliament having an opportunity to debate this in some form, and, if necessary and appropriate, to amend it. This, too, is something that we can reasonably pursue in Committee.

We are also involved here in creating significant changes with regard to the Comptroller and Auditor-General. Part 1 of the Bill makes preparation for looking forward in economic policy, and Part 2 for auditing what has actually happened, and in particular for considering the important issue of value for money, in which the National Audit Office has played an important role for some considerable time. However, I am puzzled by exactly what role the new National Audit Office board will fulfil; and by its relationship to the Public Accounts Commission—not the Public Accounts Committee, but the Public Accounts Commission, which I chaired until I left the Commons in 1997. It seems that, although the commission has subsequently recommended that an independent board should be set up, the relationship between the commission and the board is a little obscure. Perhaps the Minister will clarify the matter.

Overall, this is a forward step. We will have a more impartial approach to these matters than has hitherto been the case. However, I urge my noble friend to ensure that the present, albeit provisional, set-up for the OBR does, as soon as possible, get on with producing an accurate appraisal of what the situation is.

I come now to an entirely topical point with regard to the implications of the comprehensive spending review. We are currently in uncharted waters, and it is a very complex thing to try to work out the review’s effect on aggregate demand in the economy. Until we know that, we have no reason to say that further stimulating measures, particularly QE, are appropriate. I hope that the OBR will not delay until it becomes a statutory body in getting on with this extremely urgent task.

The committee of the OBR is to have three members, and I am not sure whether it will publish minutes in the same way as the MPC does. It increasingly appears from press reports that there is considerable division of opinion among the MPC members. We ought to consider to what extent the OBR will also publish minutes and to what extent it is appropriate for those to be in the public domain. Having said that, I look forward very much to the Committee stage, and I hope we can clarify some of the points that I have raised.

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[Lord Tunnicliffe]

My Lords, I thank the noble Lord, Lord Sassoon, for introducing the Bill so clearly—he confirmed that, fortunately, I have managed to read it with reasonable accuracy—but he also introduced a number of other points and promises in relation to a framework agreement and potential memorandums of understanding. It is very important that he should produce those, in draft at least, before the Committee stage.

I will touch on other contributions to the debate. Like the noble Lord, Lord Barnett, I was pleased that it was largely non-political or at least non-party political. The noble Lord, Lord Newby, had a little poke at us but made the important point that we all want to work together so that reports, as we have in the NAO, enjoy public confidence. He also brought out the whole issue of what the non-executives will really do.

The noble Lords, Lord Turnbull and Lord Burns, put the political interference issue in perspective, using the rather nice term “wishful thinking”, which is probably a fairer way of reflecting how politicians have been involved—in practice, somewhat reluctantly—with responsibility for forecasts. Broadly speaking, we support the OBR because of the extent to which it will take politicians out of that. The noble Lord, Lord Turnbull, made important points about the need to challenge and to have consistent presentation so that data are easier to use year by year, policy by policy and change by change.

A bit uncomfortably I even found myself agreeing with many of the points made by the noble Baroness, Lady Noakes. I, too, would like to see two Bills. Indeed, we are proposing that there should be two Bills. We take the point that writing one’s own school report has a certain lack of comfort about it. We will be probing and pressing strongly in Committee the whole issue of who audits the auditors—who does the peer review—to achieve an appropriate mechanism for a review of the whole thing. I think that her contribution was very useful. Many noble Lords came forward with the idea that we must have more clarity of what the non-executive directors do.

The noble Lord, Lord Myners, moved on to the issue of independence, which is key to this proposal. This is about the Treasury’s involvement. I know that the Treasury is a wonderful place, but when I was a public servant the word “Treasury” gave one a little cold feeling round one’s heart. It has an ability to permeate its influence through the staff and the charter. The general point made by the noble Lord, Lord Myners, about the Treasury, the staff and the charter is important. I am sure that it is not the Government’s intention to influence the OBR through the charter or the staff, but there may be another Government, with a different attitude, who may find those tools usable.

The noble Lord, Lord Myners, mentioned the word “sustainability”. The word “sustainability” is one of the most worrying things in the Bill, because it is presented as if it is a well defined term. It is not; it is very much a matter of what outcomes you want to be sustainable. We will need to probe that in Committee.

The noble Baroness, Lady Browning, and the noble Lord, Lord Touhig, clearly have enormous experience of the NAO and I thank them both for their contributions. We will be reading them with care to see whether there are points that we need to probe in Committee through amendments. I have to say that, at first look, the NAO part of the Bill seems fairly straightforward, but it is important that we have the experience of two such contributors to make sure that we get enough depth.

The noble Lord, Lord Burns, as well as putting the whole issue of politicians’ involvement in its proper perspective, raised the big question of how we solve this problem: what are the appropriate degrees of separation and what do we mean by “independence”? He called it “remit creep”; I would call it “mission creep”. It is important that we probe what the size of the mission should be in the Bill. I shall be reading Hansard with great care. The noble Lord started to flesh out what these non-executives might do and made the important point that, in the Bill, not only do we need the word “independent”—it happens not to be there, but at least the concept is—but we must have the resources, the money and people.

The noble Lords, Lord Higgins and Lord Barnett, both asked the real question: do we need this at all? We on these Benches think that we do, as a step forward, but there is the whole issue of what it adds and how it usefully contributes. It will have a good brand, but it also needs review, audit and debate involving those who have different points of view.

[Lord Higgins]

The noble Lord was right to say that that is what the noble Lord, Lord Barnett, said. I do not think that it was what I said overall; I just had a qualification with regard to particular parts.

[Lord Tunnicliffe]

I apologise to the noble Lord to the extent that I misinterpreted his words. I certainly agreed with two important points that I think he made—he may have to correct me again. I apologise; my note-taking may not be very good. I think that he strongly made the point about publishing assumptions. That is an important point, which we should have clear either in the MoU or in the Bill. I think that he raised at least a question mark as to whether the charter will be helpful or—I cannot think of a better word—sinister as a way in which to control the OBR. That needs to be clarified. Finally, the noble Lord made an important point about the OBR looking at the CSR and describing its outcomes. At least in those areas, we enjoyed some common ground.

The noble Lord, Lord Barnett, has his way of looking at these things and asked some questions of the noble Lord, Lord Sassoon, the answers to which I await with interest. He, too, asked about the word “sustainability”, which is in the Bill as if it has a clear meaning. That is a point that we will really have to mine.

We like the idea of the creation of an independent and credible OBR. It would be an important step forward in transparency and open government and an important addition to the democratic institutions. On this side of the House, we think that it is a good idea and we are prepared to co-operate to the full with the Government to achieve it. We are not prepared, however, to co-operate in the production of a seriously flawed institution. To do so would both ruin a good idea and potentially bring the whole project into disrepute. “Disrepute” is a strong term but that at least in part happened during the unfortunate events before the Summer Recess.

It has become clear in the debate that the Bill fails on this objective. We do not criticise the Government’s objective but we are critical of its execution. Perhaps Ministers were diverted from their laudable goal by their advisers; perhaps Sir Humphrey was meddling. What seems to come through is that the Treasury needs to hang on to its tools of control. Have the Government considered alternatives? Across the road, in Dean Trench Street, there is an internationally respected economic forecasting organisation, the National Institute of Economic and Social Research, a body that is already substantially publicly funded. The institute is recognised as being totally impartial and one of the best forecasting organisations in the world. A suitable contract could have handled all the confidentiality issues and much public money would have been saved. Instead of setting up a new quango, why did the Government not simply contract out the OBR to the institute? Are there good reasons for not doing that or is it because the Treasury would lose control? Why did the Government not consider going to the other end of the spectrum and placing the OBR under the control of Parliament, just as the Congressional Budget Office in the United States is under the control of Congress? The OBR would then be able to perform the range of services to Parliament and the Executive that the CBO provides in the US.

It is important to understand that the OBR is not and will not be a policy-making institution. It is therefore not part of the political process. The OBR is in the assessment business, not the making-policy business. Why, therefore, are so many control mechanisms built into the Bill? My noble friend Lord Eatwell compared the powers of the Comptroller and Auditor General set out in the Bill with those of the OBR. I compare the role of the two and their independence. Independence depends—as I said, I once worked in the public sector—on how one is appointed and how long for, how one is paid and how secure one is in that role.

The Bill strongly brings out the difference between the C&AG and the chairman of the OBR. With regard to status, one is appointed by the Prime Minister, while the other is appointed by the Chancellor. One is agreed to by the chair of the Public Accounts Commission; in the case of the OBR, it is just a matter of consent. The C&AG will serve for 10 years, while the chair of the OBR serves for two times five. Two times five is not 10, because a lot happens between those two fives. Termination is difficult in the case of the C&AG but, while it is quite difficult for the chairman of the OBR, it will not be difficult between those terms of office. At that point, the Chancellor and his concerns will come very much to the forefront of the individual’s mind when contemplating his further five years of employment. The individuals there now will be above these influences, because we know them as individuals, but we have to think in the longer term.

In matters such as pay, the pay of the C&AG can be indexed, whereas the pay for the OBR will be determined by the Treasury. The money for paying the C&AG comes from the consolidated fund; the money for the OBR comes through the Treasury. The terms and conditions of staff in the National Audit Office are determined by the NAO; in the OBR, they are determined by the Minister for the Civil Service. The finance in relation to the NAO and the C&AG comes from the public accounts commissioners—finance is pretty well independent when it comes to the National Audit Office. In the case of the OBR, it comes from the Treasury, which will have an influence on resources.

Finally, we have the staff of the OBR. I think that the Minister said that he saw them as civil servants coming in and out of the office. It is important to bottom out just who these people are going to be. Will they be an independent group, as, very clearly, the staff of the NAO are, or will they be people who, while doing their best to be totally independent, are influenced by their prior career and by where their career will be in future? All this needs to be questioned. We are not convinced that this organisation has sufficient independence.

We have looked at the work of the Treasury Select Committee and have suggested that the three tests are independence, credibility and robustness. The committee asked similar questions in paragraphs 126, 128 and 132 of its report on the OBR. Independence and credibility are crucial. We believe that the Bill as drafted fails these three crucial tests. However, we see the potential of this good idea, which is why we are prepared to work with the Government to create an OBR that passes the three tests. At the end of his speech, my noble friend Lord Eatwell advanced a concrete proposal on behalf of the Official Opposition. It would be a major step forward if the Minister could accept that proposal. The proposal remains on the table. We are ready to consult as to the particular all-party forum that is used to design the new OBR. It need not take time. It could well be done before Christmas. We are ready to accept that the OBR’s interim structure is satisfactory for the time being.

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[Lord Sassoon]

Indeed. While the Bill makes it clear that the charter may include guidance to the OBR on how it should perform its main duty, the charter must not make provision about the methods the OBR should use. That is absolutely clear and I am glad that we agree on it. Nevertheless, to provide the OBR with guidance on how it should fulfil its duties is not, in the Government’s judgment, inappropriate. While the OBR will need to act consistently with any guidance in the charter, any such guidance will have been approved by another House, so it will be wholly transparent.

The noble Lord, Lord Burns, asked how far the remit can be stretched by the guidance. It can relate only to the functions conferred by the Bill, so it cannot add to or in any way distort the remit and it has to be exercised consistently with the Bill. It cannot compromise, for example, the basic principles set out in Clause 5(2), but it can explain how they are to be applied. I do not think that the guidance should in any way lead to mission creep.

Questions were also asked about resources and whether the chair of the OBR should report each year on whether he has sufficient resources. There will be transparency of reporting through the Treasury Estimates and accounts. The non-executives will be expected to inform Parliament of any concerns they have over the independence of the OBR and its resources, and the OBR will present its annual report and accounts to Parliament through the Treasury. There will be ample opportunity, through direct contact with the Treasury Select Committee, to air any concerns on resources.

In answer to a question from the noble Lord, Lord Myners, I can give him an absolute assurance that the OBR will have full autonomy over its work programme, and within its statutory duties it will not be required to secure the Treasury’s approval of its work. On another dimension of independence raised by the noble Lord, Lord Myners, and my noble friend Lord Higgins, regarding whether the minutes will be published, that will be a matter for the OBR but I am sure that it is listening carefully to this debate.

Questions then followed about the accuracy of the forecasts and peer review. The crucial point about these sorts of forecast is that they will be wholly transparent. Each time the forecasts are published, the outcome will be clear. It will then be for all experts, economists and commentators, both Houses of Parliament and its committees to scrutinise the information. However, the Bill allows the OBR to establish expert committees if it so wishes to help it with analyses or for any other purpose.

The noble Lord, Lord Barnett, asked about meetings between the OBR and Treasury Ministers. This is something on which the OBR has been reflecting, and it has decided that in order to ensure that communications with the Treasury are transparent, the OBR will aim to publish a log of contact twice a year, each autumn and at the time of the Budget. This will begin with the autumn forecast on 29 November. I know that the noble Lord has tabled a Question for Written Answer on that point.

A number of questions were put to me about the functions of the non-executive directors. When I first saw the Bill there was a distinction between professional and non-professional. I hope noble Lords will agree that expert and non-expert improves the drafting a little, but I take the point that, equally, the words executive and non-executive could be used. For the moment I will say that the legislation follows what is common in other legislation establishing statutory bodies, including Natural England, Ofgem, the Office of the Rail Regulator, the Office of Fair Trading and the UK Statistics Authority. I will reflect on the points made about the non-executives, but the critical point is that it will be for the first meeting of the board to decide exactly what the remit should be. I think it was the noble Lord, Lord Burns—I hope I will be forgiven if it was not him—who described the remit and his description encapsulated it rather well.

Questions were asked about the relationship with the Bank. It is expected that the OBR will have a good relationship with the Bank and there will be a regular exchange of views. But it is critical that there should be no collusion between them in any sense in producing their forecasts. They should be completely independent.

Points were raised by my noble friends Lady Noakes and Lady Browning about the relationship with other government departments. Indeed, the MoUs will cover departments other than the Treasury.

[Lord Higgins]

Are we to understand that there will be two sets of forecasts? In that case, which will prevail?

[Lord Sassoon]

My Lords, at the moment separate forecasts are made by the Treasury and the Bank of England in the course of their inflation reporting. That situation will continue.

There were detailed questions about freedom of information, on which I will write to my noble friend Lady Browning. I can assure her that freedom of information legislation applies.

There will be no changes to the debt management arrangements. I agree with the noble Lord, Lord Myners, that the Debt Management Office does a fine job.

I want to spend one minute talking about the National Audit Office, because—