Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Barnett

Monday 31st January 2011 Lords Chamber

[Lord Higgins]

My Lords, I intervene briefly to express appreciation to my noble friend for the way in which he has kept us in touch during the period between Grand Committee and now with the way in which his thoughts have been developing. Certainly this is a non-controversial Bill, but the House is succeeding in improving it still further and that is a good thing.

[Lord Barnett]

My Lords, I thank the noble Lord, Lord Sassoon, for his amendments. He referred again to the independence of the OBR but, as he knows, I have all along been concerned with both its relevance and independence.

On relevance, there are dozens of truly independent forecasting bodies all over the country, including the Institute for Fiscal Studies, which used to be chaired by the present chairman of the OBR. The issue concerns itself with the expense of a body such as this when we have not only the forecasts of the independent outside bodies but the Treasury forecasts, the Bank of England forecasts and the OBR forecasts, most of which probably will be broadly in line with the current situation.

We will never know—I have tried to find out on many different occasions—the Government’s view on what should happen when they have the forecasts. The Minister has found all kinds of different ways of not answering my questions about what the Government’s policy is and whether they agree with the Bank of England on keeping interest rates at 0.5 per cent, given the growing pressure—wrongly in many quarters—on the need to increase interest rates. He will not say whether he disagrees—I appreciate that he cannot disagree with or say anything different to what the Chancellor has said—but it would be nice if, at some time or another, he could answer the question of what the Government’s policy is, as opposed to accepting the forecasts, which he has done on numerous occasions.

On the question of independence, I am worried by the constant references in the media to “the Government’s in-house forecasting body, the OBR”. This does not lend itself very well to the independence that we would all like to see in the OBR. I am sure Robert Chote will do his best to ensure that it is truly independent but, if it is no more independent than the dozens of existing bodies, why do we need the OBR at all? That is the question I put to the noble Lord while thanking him for the amendments he has brought forward.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Barnett

Wednesday 1st December 2010 Grand Committee

[Lord Higgins]

My Lords, the theme running through all our proceedings has been that the OBR shall be seen to be independent. In that context, its forecasts in particular need to be independent. It would appear that, despite what may be a possible solution, the Treasury will continue to make forecasts at the same time as the OBR is making them, and it will be extremely difficult for everyone to believe that there has not been any degree of collusion if in fact the office is located in the Treasury itself.

This is a simple amendment. It may be that the Minister will happily say right away, “It’s clear anyway from the clause, since the OBR apparently owns property in the context of this amendment’s location. There is not the slightest question of it being located in the Treasury”—in which case we can let the matter rest. I hope that that is so. I beg to move.

[Lord Barnett]

My Lords, it is really all about perception. We all know Robert Chote, the chairman; I respect him and believe him to be truly independent. Being based in the Treasury, with everything that that means, would clearly be wrong, but on the other hand I read recently—I do not know whether this is right—that the OBR was looking for premises outside. It may already have found them, so this amendment may not be necessary. Perhaps the Minister can tell us.

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[Lord Higgins]

In fact, as my noble friend has discovered, the letter was also available to the Committee today. In it, this complicated issue has been very condensed, and we will no doubt wish to return to it later.

As I say, I still have problems in believing that the OBR will carry out its duty in the terms that I quoted earlier unless it can take into account the Government’s general economic policy, which is one of the means in subsection (2)(b) by which the Treasury intends to achieve its fiscal policy, otherwise known as the fiscal mandate. In any event, it seems to clarify the situation if we accept the wording in the amendment.

Amendment 27, proposed by the noble Lords opposite, is, rightly, linked with this amendment. It raises an important point: what is meant by sustainability? The essence of what I understand that the OBR is going to do is report on whether the fiscal policies—and, I thought, the economic policies—are sustainable. At this stage, so that we have some idea what we are talking about, we need a clear definition from the Minister of what is meant by “sustainability”. One problem, of course, is that one can sustain the finances at various levels. Without knowing what the economic policy is, it will be difficult to know at what level it is proposed to sustain the financial side of the Government’s operations. We need to know, since it is in the Bill and it is important, what “sustainability” means.

[Lord Barnett]

My Lords, the noble Lord, Lord Higgins, has referred to Amendment 27 in the name of my noble friend Lord Peston and myself. The amendment itself says:

“In any report on the sustainability of the public finances, ‘sustainability’ must be defined”.

I have tried hard to obtain some kind of definition of “sustainability” in the sense in which the Minister has used it—I have tried to elicit information on many of the words that he has used, as he knows—but that word, in some of the contexts that it is used, is a little difficult, to say the least. That is why we tabled the amendment; we need to know what is being talked about here.

Again, I have tried to be helpful and brief. I would like the Minister to explain briefly what is meant by “sustainability”.

Budget Responsibility and National Audit Bill [HL]

Debate between Lord Higgins and Lord Barnett

Monday 29th November 2010 Grand Committee

[Lord Barnett]

The noble Lord now seems to be saying that the OBR can already do the job that the amendments are suggesting. In that case, why not accept the amendments? He has not given us a good reason for rejecting them. He seems to be saying that the OBR can already do the job and the amendments are not necessary, so what harm would including them do?

[Lord Higgins]

I shall try to speed up the proceedings in the light of what the noble Lord, Lord Barnett, has said. We have a specific amendment to the Bill and the Minister can say one of three things. He can say: “I accept it and will table an amendment at a later stage”; “I do not accept it for the following reasons and we will return to the matter if we wish at the next stage”; or, “I am not sure, so I’ll think about it and return to it at the next stage”. I am not in the least clear whether he proposes to accept, reject or think about the amendment.

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[Lord Higgins]

This amendment is grouped with Amendments 6, 8 and 35, which are rather more sophisticated than my amendment. Clause 1(7) states:

“The Charter (or the modified Charter) does not come into force until it has been approved by a resolution of the House of Commons”,

and my amendment adds “and the House of Lords”. The variations on that suggest the Economic Affairs Committee of your Lordships’ House and so on. It would seem appropriate that the charter should be considered by a resolution in each House and, if we have any serious problem at that stage, we ought to be able to express a view one way or another. It is a somewhat draconian measure because it would presumably mean that the charter was or was not accepted, but over the years, and despite the row we had on the Floor of the House this afternoon, there increasingly seems to be a tendency for your Lordships’ House to be more involved in affairs involving money. Therefore, I hope that the Minister will accept this amendment.

[Lord Barnett]

My Lords, I hope this group will last only a very few minutes and that the Minister will accept the amendments. As we debated this afternoon on the Floor of the House, this is not a money Bill. I do not think the Speaker in any way thought about certifying it as a money Bill. Every Bill costs a few bob, but in no way could this be described as a money Bill. I assume that the Minister is going to say that he will accept the amendments. It is quite straightforward: there is no reason whatever why the House of Lords and its Economic Affairs Committee should not be involved in looking at what the OBR is saying. When I was on the Economic Affairs Committee and the Select Committee on the Monetary Policy Committee, my noble friend Lord Peston was in the chair, and we had the Governor of the Bank of England, the Chancellor and almost everybody else there. I can think of no good reason for the Minister having the word “resist”. I hope he will not use it because there is no reason to refuse these amendments. I hope he will support them.

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[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.

[Lord Barnett]

I do not agree with the noble Lord, Lord Higgins, on Amendment 21 because I do not see why the Treasury and the Bank of England should necessarily agree. Perhaps I may make one or two points about the previous replies that we have heard from the noble Lord, Lord Sassoon. He said that amendments are unnecessary because the powers are already in the Bill. Although they are unnecessary, equally one could say that accepting the amendments would do no harm to the Bill, as they would only be repeating what is in the Bill. He also made the case for reserving the power for the Commons—at least he has given us a reason for rejecting an amendment. I disagree with him. I reserve the right to consider the matter on Report because I see no reason why the House of Lords should not consider these matters.

Finance Bill

Debate between Lord Higgins and Lord Barnett

Monday 26th July 2010 Lords Chamber

[Lord Barnett]

My Lords, I add my congratulations to those already given to the noble Lord, Lord Ryder. I think he said he made his maiden speech 36 years ago on a Finance Bill and, for his sins, got put on it again either for five years or five times—I am not sure which he said. For my sins, as Chief Secretary I took those Finance Bills all the way through the House, whether it was for five years or five times, and there were often two a year in those days. I cannot remember what I said so I hope he will forgive me if I cannot remember what he said at that time.

I will not speak about the Finance Bill this year. I want to speak to speak about the central economic forecasts of the present coalition Government. The central policy, as expressed in the emergency Budget, was reducing the deficit. The only other major policy, described as a new policy, was the Office for Budget Responsibility. Unlike 1997, when the Monetary Policy Committee was a genuinely new policy given real powers, the Office for Budget Responsibility has powers only to forecast, and those forecasts can, of course, be ignored. The OBR’s independent forecasts have been semi-criticised by many as not necessarily being so independent. The criticism of Sir Alan Budd was much overstated. He himself admitted that he was a little naive. Perhaps he should learn that he should never be naive about the Treasury and its forecasts. Otherwise, I would not doubt his integrity or his honesty, either on this occasion or on any other.

There is no shortage of independent forecasts, as the noble Lord, Lord Sassoon, will know. The Treasury itself in most, if not all, of its documents constantly quotes independent forecasts. It seems a little insulting to suggest that the Treasury’s civil servants were so lacking in independence that they were not really independent at all and allowed Chancellors over the years to override what they were saying in their published documents.

The noble Lord said that one of the benefits is greater transparency. I am sorry to see that the noble Lord, Lord Sassoon, is not transparent on every occasion. In answer to a Written Question from me, asking him for various discussions that the Chancellor may have had with the Governor of the Bank of England, he said:

“As was the case with previous Administrations, it is not the Government’s practice to provide all details of such discussions”.—[Official Report, 21/7/10; col. WA 220.]

So the noble Lord, Lord Sassoon, is not transparent on all occasions, even if he is now telling us that the OBR is.

What is clear from the OBR’s forecasts is that, unlike what was said in the emergency Budget about there being no alternative to the Government’s Budget policy, there clearly is an alternative and it was shown in the pre-Budget forecasts. In the pre-Budget document we were told that if the pre-Budget forecasts had been based on the predecessor Government’s policies, the deficit would come down to 3.9 per cent of GDP in 2014-15. In the June Budget document, we were told the Budget deficit would come down to 2.1 per cent. Even if it were to come down to zero, the difference is not so huge as to warrant such major cuts as are proposed in the emergency Budget. In any event, huge uncertainties underlie those forecasts. On page 7 of the pre-Budget forecast, under the heading, “Constructing the forecast”, we are told of the uncertainties five times within some five lines. Even the OBR and its forecasts, therefore, are massively uncertain. Despite that, a substantial programme of public expenditure cuts is now being planned, based on all those uncertainties in the OBR’s forecast.

It is clear, then, that there is an alternative. Not only is the pre-Budget forecast of the OBR not so different from the Budget forecast for 2014-15, but page 99 of the Treasury’s Red Book shows net debt remaining in 2014. Total net debt is expected to be 69.4 per cent of GDP; it would have been 74.4 per cent under the pre-Budget forecast. Although the Government’s Budget anticipates the public finances being in better shape—in their terms—than under the previous Government’s forecast, the previous forecast could by no means be described as disastrous. In any case, as I have said, there are huge uncertainties in anybody’s forecasts.

Much depends on the assumptions made. For example, the pre-Budget forecast took the predecessor Government’s growth forecasts, which many thought were too optimistic. I agree that they seemed too optimistic, although I am bound to say that the figures for the latest quarter, showing 1.1 per cent growth—which is the equivalent of nearly 4.5 per cent per annum—suggest that I was being too pessimistic. Perhaps the previous Government’s growth forecasts were accurate and would have helped cut the deficit rather faster than the present Government’s plans. However, it is much too soon to suggest that growth next year will be that high. I would not suggest for a minute that it is likely to be, because none of us knows—the uncertainties remain. The forecasts may have been reasonable—it may even be that the inheritance of the Government is rather better than they have been telling us—but the figures do not provide certainty, and it is planning major policy on the basis of such uncertainty that is so wrong.

Against that uncertain background, the Chancellor has chosen to make the savage public expenditure cuts that he will tell us about after the comprehensive spending review. Even if it is the right policy to cut to that degree, what are the chances of success? The Chancellor is setting about it in the right way—as Chief Secretary, I had to make rather a large number of cuts over many years—and asking the departments to choose their own priorities. They will have to set out public expenditure cuts in their own departments ranging from 25 per cent to 40 per cent, with the Chancellor, or the Cabinet if necessary, deciding. The departments know their own priorities.

Overall, when you are spending £700 billion of public money, I would not deny that there is room for cuts. However, I would not have ring-fenced any department, not even the National Health Service. After all, the National Health Service’s expenditure in 2008-09 was nearly £110 billion—it will be much higher now in real terms. To pretend that there is no room for substantial cuts in administration out of that level of expenditure is surely wrong, so one could have reduced the cuts even more.

Public expenditure can be cut, and it is clear that this was the Conservative Party’s agenda. Indeed, even if there had been no deficit, these cuts would have been proposed so that it could make the tax cuts, which is what it is really about. It is going to have considerable difficulty in making 25 per cent cuts, never mind 40 per cent, in every single department.

I have spoken to a number of other former Chief Secretaries and Chancellors, Conservative ones as well, and none of them thinks it can be achieved. If it is achieved, as the Government seem determined it will be, I am sure they will appreciate, although I am not sure their coalition partners the Lib Dems appreciate, what it will mean to those departments to make 25 per cent cuts in every one of them over a four year period. I hope we never come to it, but I fear we may if the House accepts and the Government accept that what they are doing is right.

The OBR has shown, given its uncertainties of forecasts, that it will no longer forecast what exactly is going to happen, so we should listen to Ben Bernanke in the United States, where they also have uncertainties. Indeed the phrase used by Bernanke was, “unusually uncertain”. Despite all that, we are going to get these massive cuts, come what may. I can only hope that by keeping interest rates low, the Bank of England would offset some of the worst of it.

The Bank of England is truly independent of course. It is more independent than the OBR because it has an Act of Parliament already. We have always known that a senior Treasury official attends the monthly meetings of the Monetary Policy Committee of the Bank of England. What we have never known is whether he sits there saying nothing, because no previous Treasury Minister has ever been willing to say what exactly goes on at those MPC meetings or whether the Treasury official joins in. He is not a member of course. Now we know that he does. We had an answer the other day which I think the noble Lord, Lord Sassoon, may regret, but it is worth quoting. He is shaking his head, but let me quote what he said, because I promise him that it will come back to him. It was on 20 July in answer to a supplementary question from me, in which I said:

“the noble Lord has just said that it is not for him to comment on what the Bank of England does”,

but I pointed out that a senior official from his department attends those MPC meetings. His reply was very interesting.

“My Lords, it is correct that a senior official of the Treasury sits in on the monthly Monetary Policy Committee meetings, but that official is not a member of the committee. I have performed that function myself on one occasion, and I understood that it was my duty to bring to the attention of the MPC anything the Treasury thought it ought to be aware of”.—[Official Report, 20/7/10; col. 908]

I am delighted to hear that, because it is quite sensible. I never really did believe, because it is so important an issue, that the Chancellor never spoke to the Governor of the Bank of England on this and many other matters. The sensible thing to do was to talk to the Governor of the Bank of England. In due course, if, sadly, they go ahead with these policies, will the noble Lord, Lord Sassoon, assure us that the Treasury, if not the Chancellor himself, will, through the senior official at the MPC meetings, tell the MPC the Chancellor’s or the Treasury’s views on the need to offset the worst of the public expenditure cuts by keeping interest rates low, and possibly by increasing quantitative easing? I know that the noble Lord, Lord Higgins, thinks that that is of no use anyway but it is a worth a try. It is better than doing nothing and letting the worst effects of the public expenditure cuts take effect. I have some more written questions—

[Lord Higgins]

I am grateful to the noble Lord. I did not say what he has just reported me as saying; I said that the quantitative easing is being frustrated, which is not the same thing.

[Lord Barnett]

I am sorry to misquote the noble Lord. I thought that that was what he was getting at, but never mind. I apologise to him, but I am not apologising to the noble Lord, Lord Sassoon. I want him to give us an assurance. In the event of the cuts turning out to be as bad as many are now indicating, I am not alone in suggesting that that could reduce economic growth, not see it increase. The ITEM Club, which is truly independent, has said the same as the IMF in suggesting, based on Treasury figures, that it would have an effect on economic growth.

Finally, Martin Wolf, in a recent article in the Financial Times, put the arguments well for whether the economy should be tightened in current circumstances. He is a highly regarded journalist, as I am sure the noble Lord will agree, and he put the central issue as follows. If tightening is correct, which is the Government’s policy,

“failure would bring fiscal and financial shocks”.

On the other hand, if tightening is not correct, it might,

“threaten recovery and might trigger further … shocks”.

The consequences of tightening, as I have said, could be very serious indeed. Nevertheless the Government, with Lib Dem support, seem bent on pursuing that policy. I am not sure whether the coalition partners fully appreciated what they were agreeing to. The Government, however, have always said—I started off with this—that there is no alternative. In fact, as I have shown from the OBR’s own forecasts, there is an alternative. I hope that the Government will take it.