Financial Services (Banking Reform) Bill
Debate between Lord Higgins and Lord Eatwell(11 years ago)
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Lord Eatwell
My Lords, in general these are desirable and beneficial changes, although they do not really represent the great boost to the growth of the mutual sector which we might have expected. However, I want to raise just two major issues. The increase in the use of electronic communication, particularly given the typical customer profile of building societies, raises the possibility that certain members will be disadvantaged with respect to the availability of regular information and of course the summary financial statement, which they should be able to receive in order to understand the overall status and security of their building society. Is the noble Lord content, and can he reassure the House, that there are suitable safeguards so that those who do not have ready access to electronic communication receive appropriate paper copies?
Turning to the issue of owners of preferred shares, can the noble Lord reassure me that the definition of ownership is the same as for those who have held shares for two years? The noble Lord may remember that initially when building societies were demutualised this caused problems, because if Mr and Mrs Smith held a joint account, in fact only Mr Smith was deemed to be the owner. If Mr Smith happened to die within the two-year period, Mrs Smith did not then gain mutualisation advantages. In a Private Member’s Bill which I helped take through the House, we changed that regulation so that in that circumstance both Mr and Mrs Smith would have the advantage if one of them was deceased. Even young Jimmy Smith would have the same advantage if his parents were killed in a car accident. Does the definition of ownership in this case have that broad scope that was specifically created for the demutualisation efforts—in other words, the owners are not the first-named person on the account but can include both a spouse or a partner and a first child?
Lord Higgins
As I understand it, the Government are proposing to remove the provision that on demutualisation people had to have held the shares for two years beforehand. Is there not some argument in favour of that? Otherwise, if it seems possible that a demutualisation will take place, there will be a sudden rush for people to benefit and obtain a purely short-term gain, as against those who have invested in the mutual for some time.
Financial Services (Banking Reform) Bill
Debate between Lord Higgins and Lord Eatwell(11 years ago)
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Lord Eatwell
I just take up the Minister on that last point. Surely one of the key arguments about the ring-fence is that there is an implicit guarantee from the public authorities not to allow institutions within the ring-fence to fail. That implicit guarantee is worth a lot of money to those banks that have been too big to fail. Surely the whole point about the ring-fence is that those outwith it would not benefit from that form of public continuity guarantee. But is the noble Lord saying that the Government wish to retain such measures, which would allow them to implement such continuity guarantees?
Lord Higgins
I come in on the same point, if I may, because my reaction was the same as the noble Lord who has just spoken. Am I right in thinking that all these bail-in provisions apply only to ring-fenced banks? Is that the case, or not, or are they extended to banks that are not within the ring-fence? Perhaps the Minister could make absolutely clear what the position is, because it was not clear earlier.
Financial Services (Banking Reform) Bill
Debate between Lord Higgins and Lord Eatwell(11 years ago)
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Lord Eatwell (Lab)
My Lords, I am grateful to the noble Lord for introducing this set of amendments about pension schemes. The argument for the amendments raises two significant questions. We are talking here about transitional arrangements: about moving from a group pension scheme to what might in future be deemed to be necessarily separate schemes for the ring-fenced and non-ring-fenced components of a group. There must therefore be other transitional arrangements as well—for example, property leases which are relevant to a group. Are they, too, to be separated and decomposed? What are we going to do about all those group liabilities similar to pension liabilities during the period between the implementation of legislation for ring-fencing and the conclusion when ring-fencing has been in place for some time? Over that period, there have to be transitional arrangements. Clearly, pensions are a very special case because the people will presumably stay where they are, but there must be other elements of liabilities which are also rather difficult to untangle. My first question is therefore: what is the Government’s thinking about such transitional problems?
The second question, which is much more specific to pensions and immediately arises, is whether the separation will be to the detriment of members of the pension scheme. This is precisely an area in which scale can become enormously important in a pension scheme, especially with respect to diversifying risk. The sheer scale of a pension scheme can be a component of the commercial success of that scheme. If the scheme is to be broken up, will it be to the significant detriment of the pensioners? There must surely be some consideration of whether it is to be their detriment and, if so, of what measures are to be taken to remove that detriment.
Lord Higgins (Con)
The role of the trustees will be very important in this context. Is it envisaged that the two parts of the bank will have separate trustees?
Financial Services (Banking Reform) Bill
Debate between Lord Higgins and Lord Eatwell(11 years ago)
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Lord Eatwell
My Lords, the noble Lord, Lord Higgins, has raised a very important matter with respect to authorities outside the UK. The proposals under Glass-Steagall and under Liikanen are different from the ring-fence—the divisions appear in different places. In those circumstances, “similar powers” seems to be a very weak description, because they are similar but not the same. With respect to resolution powers, which are crucial in the relationship between the parent body and the ring-fenced entity, that seems to create a degree of uncertainty. Can the Minister clarify exactly what that applies to? Presumably, it applies to the home-host division in regulatory responsibility and therefore subsidiaries of UK institutions in other jurisdictions will be regulated by the home regulator. If the home regulator has different rules with respect to the divisions, it seems to me that there will be a degree of confusion as to what is actually being enforced.
I am grateful for the Minister’s clear answer about the valve that goes one way on the raising of debt and capital. I return to my previous question. Let us suppose that we have a group in which the liability structure of the ring-fenced entity is essentially provided from the parent through the one-way valve and then the parent simply stops providing. In those circumstances, the security and stability of the ring-fenced institution would surely be threatened. The ring-fence would not be working simply because the steady flow of financial support for the ring-fenced institution had been cut off.
Lord Higgins
My Lords, I am a little clearer now than I was a moment or two ago. It would be helpful if my noble friend could say what is the position in each of the countries that I just mentioned. As I understand it, the emerging EU proposals—I am looking at a brief from the Law Society—will,
“require banks to create separate entities (although they will be allowed to stay within the same group) in order to split proprietary trading and market making off from other banking activities”.
On the other hand, the United States scheme will require,
“complete separation of proprietary trading but the bank is allowed to undertake market making”.
Under the amendment, we will apparently have those outside bodies setting the rules for banks in the UK. Consequently, we may find that the ring-fence is being drawn in quite different places—the noble Lord opposite seems to agree—depending on which authority is exercising the powers of resolution.
Budget Statement
Debate between Lord Higgins and Lord Eatwell(11 years, 7 months ago)
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Lord Higgins
My Lords, myths can be important in politics, and there is now a pretty well established myth that last year’s Budget was a bad Budget. In reality, all the good news came out the day before Budget Day and therefore there was nothing left but criticism on Budget Day itself.
I am sorry that the Chancellor does not appear to have learnt the lesson from that. It is vital that we reassert the convention in Parliament that budgetary matters are first announced to the House of Commons. There are good reasons for that. Obviously it is the right of the House of Commons to receive the news first, but it also prevents the risk of market-sensitive information getting into the public domain and someone making a fortune out of it. I was therefore very concerned by the Evening Standard story last night. I have to say that, obviously in a post-Leveson mood, it made an abject apology in later editions for what was on the front page of the first edition, and that is to be welcomed. It emerged very clearly that it was in receipt of an embargoed copy of the speech. I believe that is totally wrong, not least because it discriminates between some journalists and others, and because it endangers the basic principle. I hope the Minister will give me an assurance that he will speak to his right honourable friend the Chancellor and ensure that that practice is abandoned forthwith and that the traditional view—which was exemplified by Hugh Dalton when he resigned as Chancellor when all he did was to have a quick word as he was going into the Chamber—will prevail.
Lord Eatwell
This side totally support the remarks just made by the noble Lord, Lord Higgins.
Lord Higgins
I am grateful to the noble Lord. I think it should be a unanimous view in Parliament.
I believe this is a very good Budget that does a considerable amount to encourage growth. I particularly welcome, first, the help-to-buy proposals, both of them, which will ensure that there is a higher degree of growth than there would otherwise be. The Minister, in a speech that gave the impression that he wrote it himself, rightly said that there are risks here. It is not clear, if one is going to give guarantees to homebuyers—if one is going to subsidise in this way—that they are really able to meet the responsibilities of taking out a mortgage. We do not want to go back to the disasters of Northern Rock and so on, of which many of us in this House bear the scars, but both schemes are very good and greatly to be welcomed.
I very much welcome the proposal about helping small businesses by removing what the Chancellor rightly described as the jobs tax. Many small businesses are reluctant to take on a few more employees because of the up-front costs. I am sure that the employment allowance will be of considerable help to the state of the economy.
I now turn to the main point with which we are all concerned: the deficit. The Minister referred to it. What was clear from the business about the AAA rating and so on is that we have to press ahead. It is very good news that the slogan that had been emerging, “We have cut the deficit by a quarter”, can now be changed to “We have cut the deficit to a third”, but it still means that we are continuing to borrow more at two-thirds of the rate that the previous, disastrous, Labour Government were maintaining. Therefore, we need to look very carefully at what is being said.
If I may make a rather semantic point, in his speech the Chancellor referred to “cutting borrowing”. He should, of course, have said, “We have been successful in cutting extra borrowing”. Total borrowing continues to go up, and that is of serious concern, not least in relation to monetary policy. It is very important that we look at the new relationship that appears to be developing with the Bank of England. I was always very sceptical of what was always hailed as Gordon Brown’s great achievement of giving independence to the Bank of England because it means that we are handing over more and more power to a small group of people who are totally unaccountable with regard to one of the two main levers of economic management. I hope that we can make progress on this.
On the proposals the Chancellor is making, we certainly need to look at the inflation target and at whether other considerations can be taken into account. Having said that, it would be helpful to move now from what was just an interest rate policy for many years after the Gordon Brown change to a policy that is concerned with controlling the money supply, which is what one really means by “a monetary policy”. I remain a strong supporter of quantitative easing despite the unfortunate side-effects, particularly on private sector pension schemes and so on. If one is not able to do anything because of the deficit problem on the fiscal side, we really must have an active monetary policy. In that context, greater co-ordination between the Treasury and new Bank governor will be of crucial importance. As I have said time and again, and I commend this to my noble friend on the Front Bench, it is absurd that the Treasury is working to one set of economic forecasts and the Bank of England to another. We should have a more unified policy on the link between the monetary and fiscal sides of economic management.
Overall, however, the Chancellor has done everything that could possibly have been done to be helpful, to stimulate growth and to ensure that we continue to do so. However, we must continue to do all that we can to cut the deficit. Immediately after the election and the formation of the coalition, I stressed how incredibly difficult this was going to be on both the tax and expenditure sides. I have been proved absolutely right. We have to go on in the same way. Labour still seems to be saying that we are cutting too much too soon. I am afraid that it is absolutely clear that we have not cut enough fast enough. We must therefore press ahead with that.
Debt
Debate between Lord Higgins and Lord Eatwell(12 years, 5 months ago)
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Lord Eatwell
My Lords, yesterday’s government announcement on VAT will add £110 million to the annual deficit and hence cumulatively to the public debt. Will the Minister explain to the House why the announcement on VAT was not first made in Parliament, in compliance with the Ministerial Code? Will he also tell us what alternative ways of spending the £110 million of petty cash were considered? Does VAT now apply to humble pie?
Lord Sassoon
My Lords, I am glad that in the space of three minutes the party opposite’s definition of petty cash has come down from £1 billion to £110 million. On a number of issues, including the VAT changes, we said that we would consult. We have consulted and we have come up with what we believe is the right approach, having talked to a range of interested parties.
Budget Responsibility and National Audit Bill [HL]
Debate between Lord Higgins and Lord Eatwell(13 years, 9 months ago)
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Lord Eatwell
My Lords, I first moved this amendment in Grand Committee in which, of course, there are no votes, and the matter was simply left on the table. I regret that the Government have not seen fit to bring forward some proposals whereby the OBR’s budget would be formally exposed to independent scrutiny. My argument then was the same as my argument now. Given that our fundamental objective is to ensure the OBR’s independence to the greatest degree possible, one of the key means of controlling any independent organisation that is limiting its budget relative to its responsibilities must be constrained. In this amendment we have proposed that it be constrained by the requirement to publish the annual budget and make it available for scrutiny and assessment by the Treasury Committee in another place.
When we discussed this in Grand Committee, the Minister made the following points. First, he argued that the Treasury was incentivised to fund the OBR adequately, since the OBR performed important tasks for the Treasury. What worries me is that this argument is indicative of a failure by the Government to understand fully the need to ensure the independence of the OBR. Of course the Treasury is incentivised to fund what it wants done, but it is not incentivised to fund what it does not want done. Truly independent studies by the OBR that ruffle Treasury feathers will not attract enthusiastic funding from the Treasury. Therefore the incentivised argument really does not carry any weight.
Secondly, the Minister argued that the current funding agreement, outlined in a letter from Sir Nicholas Macpherson to Robert Chote, provided adequate funds to the OBR through to 2014, but what about after 2014? The creation of the OBR is not just for the next three or four years. We on this side of the House hope that it will become and remain for many years a valuable instrument in UK economic policy-making—valuable because it is independent—just as the Monetary Policy Committee has become a valuable instrument in UK economic policy-making. To argue simply that things are okay now is a quite inadequate way of providing confidence for the future. Therefore, the second argument does not stack up.
Thirdly, the Minister argued that there were other means of informing the Treasury Committee of another place of the OBR’s budgetary position, for example via the OBR annual report. Once again, he fails to grasp the substance of independence. It is not for the OBR to fight its budgetary corner, which is what it is being asked to do. It is for Parliament to ensure that its independence is protected. That is what we on this side seek to do in this amendment.
Finally, the Minister suggested—extraordinarily—that paragraph 15 to Schedule 1 provided protection for the OBR’s budget, whereas in fact it does exactly theopposite, leaving power with the Treasury to keep the OBR on as tight a budgetary leash as it wishes. Therefore, the arguments deployed in Grand Committee did not answer the case that was made. They were not simply unconvincing but disturbing, in that they betrayed a lack of understanding of, and commitment to, the concept of the independence of the OBR.
I have been working on this issue and my concerns deepened when I investigated what had happened to similar organisations in comparable jurisdictions. In Canada, the incoming Conservative Government established the Parliamentary Budget Office in 2008. Toronto’s Globe and Mail reported that a year later, after the Parliamentary Budget Office had produced two reports that were critical of the Government, the office’s annual budget was frozen despite earlier promises to boost it by a third. This was Canada's Macpherson moment, when the letter and the promise were withdrawn.
In Sweden, the Fiscal Policy Council was set up in 2007, once again by an incoming Conservative Government—there is a pattern here. On 18 November last year, the council wrote an open letter to the Government pointing to the discrepancy between its remit and its resources. What was the reaction? The Swedish Minister of Finance is reported to have reacted negatively to the letter and suggested—you guessed it—that the council's budget should be cut in response. Thus in Canada and Sweden—two jurisdictions for which we have great respect—critical reports have resulted in budgets being frozen or cut.
On 6 December last year, a letter appeared in the Financial Times in support of the independence of the Hungarian Fiscal Council—the Hungarian version of the OBR. One author of that letter was Mr Robert Chote, the chairman of our OBR. As well as making the case for the independence of the Hungarian organisation, Mr Chote and his fellow signatories argued that:
“Developments in Hungary are also of a more general interest for the viability of independent fiscal monitoring. It is easy for a government to be in favour of this in principle. It is more difficult to stand criticism when it is actually delivered”.
How true that is—and how important, therefore, is the amendment before us, the purpose of which is to support the independence and the financial integrity of the OBR.
If the OBR behaved in a manner that did not suit the Government, for example by undertaking extra studies that cast government policies in an unfortunate light, the easiest way to discipline those independent-minded souls would be to cut their budget, forcing them back to their core function and thereby diminishing their independence. Control of the budget is an important means of controlling any organisation, as the Swedish Minister of Finance made clear.
The amendment seeks to provide the OBR with the protection of independent scrutiny of its budget. The budget must be published and made available for scrutiny by the Treasury Committee of another place. The OBR would not have to fight its corner; Parliament would fight its corner for it. This would give the Treasury Committee the opportunity to have its say on whether any inappropriate limitations were being placed on the OBR’s operations by budgetary means. If you like, the amendment provides scope for the Treasury Committee to act as the financial champion and protector of the independence of the OBR.
The Minister should mark the words of Mr Chote in his letter in the Financial Times, and accept the amendment to ensure that the OBR’s budget is protected, even when it speaks unwelcome truth to those in power. I hope the Minister can give me some reassurance that this issue will be taken seriously and will be considered for government amendment at Third Reading. I beg to move.
Lord Higgins
My Lords, given that I was chairman of the Treasury Committee in another place for something like 14 years, I am naturally rather sympathetic to the amendment. However, it does not seem to do what the noble Lord, Lord Eatwell, said it does. It does not enable the Treasury Committee to control the budget, but enables it to ensure that the budget is scrutinised after being published. This is something which my noble friend should readily accept, because it would be very surprising if the annual operations budget were not to be published. I should have thought that that was consistent with the whole argument for transparency which we have heard from the Government throughout the debates on this Bill, and that it should be virtually automatic. It is equally likely that the Treasury Committee would wish to scrutinise the budget, once published. My noble friend might of course argue that it is unnecessary for the amendment to be made, but, if it were, some reassurance would be given to those expressing the kind of view expressed by the noble Lord, Lord Eatwell. It would certainly be right for the budget to be published and for the appropriate body to look at it to be the Treasury Select Committee in another place.
Budget Responsibility and National Audit Bill [HL]
Debate between Lord Higgins and Lord Eatwell(13 years, 11 months ago)
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Lord Eatwell
I agree with the noble Lord that the amount of information that is published has increased, to general benefit. I spent a few happy hours over the weekend playing with the Excel spreadsheets on the OBR website and plugging them in to a model that I use to think about the economy. I found some interesting inconsistencies and will write to Mr Chote about them.
The point that has come up several times in our discussions concerns the balance between the Bill and the charter. The charter can be changed readily, as it is not primary legislation. We must give careful consideration to whether, for example, transparency as defined in the charter gives a sufficiently strong underpinning to the need to reveal information, or whether statements such as those in the amendment proposed by the noble Lord, Lord Higgins, or in those proposed by me and my noble friends, should be in the Bill. This has come up several times. It is an issue that we should take away and consider carefully before Report. Where should we strike the balance between an explanatory charter that gives guidance to the OBR and the statutory requirements? I do not have a firm opinion. However, on this issue I lean toward the idea that it should be in the Bill rather than in content that could later be amended. Of course, it would have to be put before Parliament—we know the charter procedure—but it can be changed. If we really care about this, perhaps we should put it in a form that cannot later be changed. This is a matter for future consideration.
Lord Higgins
My Lords, we are grateful to the Minister, who has clarified a number of points. I will come back to an obvious and fundamental one. I am still not in the least clear why we will have both an OBR forecast and an official one from the Treasury that will be useful for Ministers. I simply do not understand this.
Lord Eatwell
My Lords, from our side, the point is not that that capability should not be there, as it clearly should be. However, confusion was introduced into the discussion by references to a Treasury model and forecasts, which puzzled us all, as opposed to having a capacity to critique and develop the modelling of the OBR.
Lord Higgins
My Lords, I understand the argument of the noble Lord, Lord Burns, and I should like to think further about what has been said on this issue.
Perhaps I may raise a further point in relation to the model. Over the past 80 or 90 years, we have had a huge difference of view as to whether one should adopt a Keynesian or a monetarist approach to these problems. My impression is that the OBR now has an essentially Keynesian approach and that the monetary aspect does not appear in the discussion at all, other than to say, “Well, of course, the Bank of England is targeting inflation”, and let it go at that. However, as I have previously pointed out to the noble Lord, Lord Myners, and others, until we got into quantitative easing the Bank was concerned purely about the price of money—the rate of a single rate of interest—rather than the quantity of money.
I am not the least bit clear about the proposal as it now comes here and to what extent the OBR is taking monetary factors into account. Let me illustrate this by giving an example from many years ago. I am delighted to see that the basic approach to economic forecasting on page 28 is to decide on how much excess capacity there is and then to see to what extent aggregate demand gradually increases and absorbs that excess capacity. That was precisely the policy that we adopted in 1970 under the Heath Government. We said then, in the clearest terms, exactly what is being said now on page 28. Unfortunately, this was misinterpreted as a dash for growth and we were absolutely pilloried by those who said that the money supply had been going up very fast. In fact there was a big difference between the money supply, the money supply figures and what was happening to aggregate demand. The point that I am seeking to make is that this does not take into account the effect of quantitative easing, for example, or, if it does, I am not clear where that would appear in these forecasts, although no doubt the Minister can enlighten us.
Given that we are told that the Bank of England is going to make yet a third, quite different, forecast in addition to the, I am almost inclined to say, surreptitious one in the Treasury—I accept fully the point made by the noble Lord, Lord Burns—I am worried that the fiscal and monetary side is not sufficiently integrated in the forecasts.
Lord Eatwell
I thank the noble Baroness, Lady Noakes. It is, as we say, a learning experience.
Lord Higgins
It is very simple. You ring up the Whips Office and say, “I don’t like the way in which it has been divided up”.
Lord Eatwell
I am grateful for the supervision. However, if we look forward, we will be discussing a set of amendments about which I feel very strongly in the context of reinforcing the powers of the OBR. If those amendments are accepted, that would require this amendment also to be accepted. While withdrawing the amendment at this time, I will be intrigued to see how the noble Lord, who will clearly appreciate the wisdom of my future amendments, manages to square accepting them with rejecting this one. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
Before the noble Lord withdraws his amendment, I agree entirely with the Minister that there is a clear degree of consensus on what we are all trying to achieve. However, there is a degree of consensus that Clause 5(3), as currently drafted, does not achieve it. When we have concluded Committee, I intend to write to the Minister about this matter and a number of others where I think that we have total consensus on what we want to achieve and even perhaps to suggest meetings prior to Report to sort it out. That way, everybody can be clear about and comfortable with what we shall in due course pass into law. Having said that, I really do not see how Clause 5(3) can survive as currently drafted but, given that we are now really clear about what we want to do, we can sort something out.
Lord Higgins
My Lords, the whole purpose of a Committee stage is to get to the bottom of certain difficult aspects of a Bill. I am sure that it is right that the Minister should look at the matter very carefully between now and Report, in particular with the parliamentary draftsmen. I have no doubt that the noble Lord, Lord Eatwell, and others can look at it as well. It might be helpful to keep in touch on whether we all agree on the amendment to table or whether we should put down alternatives. At all events, I beg leave to withdraw the amendment.
Budget Responsibility and National Audit Bill [HL]
Debate between Lord Higgins and Lord Eatwell(13 years, 11 months ago)
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Lord Eatwell
A peculiarity of Schedule 1 as drafted is that the members of the committee who are required to have the relevant skills we have talked about are also required to obtain the consent of the Treasury Committee of the other place, whereas the non-execs are not. This is peculiar and unfortunate because, while there is a clear template against which to measure the members of the committee—they must have a suitable professional status within the economics profession, and especially within economic forecasting—the non-execs require a wider skill set. It would be inappropriate to spell out a particular skill set—even though my noble friend Lord Peston wants it in the Bill—because that is best assessed by the Treasury Committee and, if we wish to add it, the Economic Affairs Committee of your Lordships’ House.
What kind of things do we want? We want independence, experience, commitment, a clear interest in the issues at hand and an understanding—although not necessarily a high level of expertise—of the strengths and weaknesses of economic forecasting. We also want political independence, or at least political balance, within the structure of the non-execs. The Treasury Committee, which covers a multitude of sins, has the expertise to evaluate that kind of skill set. That is why Amendment 10 seeks to apply the kind of rigour and general assessment to the appointment of the non-execs as is applied to the appointment of the committee. I beg to move.
Lord Higgins
My Lords, I am a little worried about the remark “covering a multitude of sins” as I was chairman of the Treasury Select Committee in the other place for about 14 years—in fact, probably for most of the time that it has been in existence.
Lord Eatwell
If the noble Lord and the right reverend Prelate will allow me to explain, I was using the term in the same way as the Church of England covers a multitude of sins.
Lord Higgins
It will be interesting to know the Minister’s view on that one. I support the noble Lord in the view he has expressed. I welcome the fact that sub-paragraphs 1(1)(a) and (b) of Schedule 1 both require the Treasury Committee of the House of Commons to be involved. As I said at Second Reading, I think it is true to say that this is the first time that a Treasury committee in this sort of role has ever appeared in legislation. But like the noble Lord who moved the amendment, I am puzzled as to why the Treasury Committee should be involved in the case of the first two groups and not in the case of the third. It seems appropriate that it should be involved in all three. It is certainly appropriate that it should be involved in the appointment of the chairman, because the chairman plays a crucial role between the parliamentary side of things and the Executive nowadays, so that is very good.
I also remain puzzled as to why, under sub-paragraph (c) of Schedule 1, the two members are to be nominated by the OBR and then appointed by the Chancellor, whereas those under sub-paragraphs (a) and (b) are simply appointed by the Chancellor. No doubt the Minister can explain why the OBR should be in the nomination of the third group.
Lord Higgins
My Lords, on one occasion when the Government that the late Iain Macleod was opposing accepted an amendment, his response was, “You don’t shoot Santa Claus”. Perhaps that is an appropriate reaction in this instance. I am delighted to hear what the Minister has said.
Lord Eatwell
Before the noble Lord finishes, I should like to comment. I really am having road-to-Damascus experiences today; I now think that this is rather important, although I did not when we started. Yes, the OBR is moving out, but the point is that this is a Bill to establish that body for the long term. The Minister has said that it is up to the OBR to decide where it goes. Let us suppose that it decided to go back. Would that be acceptable? The answer, of course, is no. Having felt that the noble Lord, Lord Higgins, had tabled an amendment that had been superseded by events, I now realise that he has spotted a rather important point.
Lord Eatwell
This is a tricky issue but the balance has been struck by a combination of the noble Lord, Lord Turnbull, and my noble friend Lord Myners. If the staff of the OBR is simply a rotating group of Treasury officials, the appearance of independence, which is so important to the OBR, will be endangered. We should remember especially the crucial independence of method set out in Clause 6(2). If it is a rotating group, it will carry with it the method that it brought from the Treasury. On the other hand, I recognise that we do not want to limit the career prospects of staff or the quality of staff; we want to get the best people we possibly can.
The Government cannot be complacent about this. The OBR will undoubtedly be under close scrutiny and it will not do for it to allow employment to be a revolving door connected to the Treasury. It is up to the Government to come up with an answer. If they want the OBR to have independence, they will have to find a solution to the staffing problem. I am afraid I do not have it; if I did I would offer it. Given its independent role under Clause 6(2), it is clearly a problem. However, I entirely agree that we should not in any way endanger the career prospects or the quality of the staff of the OBR.
Lord Higgins
My Lords, one could look worldwide and still fail to find better experts on the practical implications of this amendment than the noble Lords, Lord Burns and Lord Turnbull. There are obviously considerable practical problems and the Government have to face up to the fact that if these are insurmountable, then the argument that the previous arrangements on forecasting were biased and subject to ministerial interference and so on will be difficult to sustain if precisely the same people are making the forecasts now as were making them before.
The Minister shakes his head and I look forward to reassurance from him. However, one cannot simply let it rest and say that it does not matter because they are the same people. Given the overall intention of the creation of the OBR, one has the political problem that it should be seen to be independent.
Lord Eatwell
My Lords, a well known and effective method of controlling any nominally independent body is by controlling its budget. Under this Bill, the budget of the OBR is clearly controlled by the Treasury. In Schedule 1(15)(1), we are told:
“The Treasury may make to the Office such payments out of money provided by Parliament as the Treasury considers appropriate for the purpose of enabling the Office to meet its expenses”.
If the OBR were not behaving in a manner that suited the Government, perhaps by undertaking a number of extra studies that cast the implications of government policies in an unfortunate light, the easiest way to discipline those independent-minded souls without going into any fuss about independence would be to cut their budget, forcing them back to their core function. Control of the budget is an important means of controlling an organisation.
All that the amendment proposes is that the budget be published and made available for scrutiny by the Treasury Committee of another place. That would give the Treasury Committee the opportunity to have its say on whether any inappropriate limitations were being placed on the operations of the OBR. Amendment 16 provides the scope for the Treasury Committee to act as the financial champion and protector of the independence of the OBR.
Noble Lords may have noticed a theme running through the amendments that my noble friends and I have proposed. We are attempting to enhance the independence of the OBR, and I am surprised that the Minister is resisting that attempt. I beg to move.
Lord Higgins
My Lords, I presume that the Minister will confirm whether the budget is going to be published. If it is, clearly the Treasury Select Committee could have a look at it if it wished. It seems more likely, however, that it would be examined by the Public Accounts Committee rather than the Treasury Committee, having already been looked at by the Comptroller and Auditor-General.
Lord Higgins
Some years ago, the Comptroller and Auditor-General and the PAC agreed that the Comptroller and Auditor-General could carry out value-for-money examinations. So it could do that.
Lord Eatwell
Absolutely. I agree with value for money, but the issue that we are discussing is the independence of the OBR in the pursuit of its activities. It may have pursued a constrained raft of activities very efficiently, providing good value for money, but the issue is the constraint. The Treasury Committee would be sensitive to exactly that kind of issue. That is why I have incorporated the Treasury Committee into my amendment.
Lord Eatwell
Absolutely. We have just heard clarity provided from this incredibly obscurantist piece of drafting. This subsection is a negative. It says:
“Where any Government policies are relevant … the Office may not consider”.
You are taken to the negative. The verb with operational significance in that sentence is “may not”. The noble Lord, Lord Newby, has hit the nail on the head. If one really wants to achieve what we are all trying to achieve, this subsection should be split into two with Clause 5(3) saying, “Take these things into account” and a new Clause 5(4) saying, “Don’t mess around looking at other people’s policies”.
Lord Higgins
When we consider my amendment which refers to Clause 5(3), I shall make a quite separate point. The noble Lord, Lord Newby, has essentially encapsulated what he wants to say. The problem for the Government is that we are saying that the OBR has to take into account the Government’s economic policy, whereas the noble Lord’s letter—and the debate on that lasted for an hour and 20 minutes on our first day in Committee—was concerned with saying that we must not under any circumstances allow the OBR to look at economic policy.
Budget Responsibility and National Audit Bill [HL]
Debate between Lord Higgins and Lord Eatwell(13 years, 11 months ago)
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Lord Eatwell
My Lords, before we start our discussion of the Bill, let me say how grateful I am to the Government Chief Whip for postponing the beginning of this Grand Committee until now. It would have been impossible to have prepared a reaction to the Autumn Statement in time without her indulgence, for which I am most grateful.
There is an inconsistency in the Bill, which Amendments 1, 3 and 4 in my name are designed to correct. The inconsistency derives from the fact that the charter, which is referred to in Clause 1, is supposed to provide guidance as to the main duties outlined in Clause 4. Clause 4 lists those duties as sustainability, fiscal forecasts and economic forecasts, yet Clause 1 calls for guidance only on fiscal and sustainability issues; it makes no mention of economic issues. That is the core inconsistency.
The issue to be addressed is rather more than formal, as sustainability issues and, indeed, fiscal balance are not independent of economic performance. For example, it is quite possible to have a sustainable very small state or a sustainable very large state. Equally, it is possible to have a sustainable stagnant economy and a sustainable dynamic economy; in fact, I am sure that that is what the Minister would claim the coalition is creating. More specifically, different assumptions about the performance of the world economy as a whole will impact on the fiscal forecast and on any concept of sustainability. If we are to provide consistent advice in the charter to the Office for Budget Responsibility under its duties in Clause 4, the amendments in my name, which would introduce the word “economic” into the clauses, should be accepted.
Moreover, the charter introduces a fourth element, which is the promotion of “intergenerational fairness”. It would be helpful if the Minister could, when he sums up, define exactly what this means. Perhaps I could help by setting out what it cannot mean. It cannot have anything to do with the fiscal balance as such, as the size of a deficit defines the content of redistribution between different groups of current and future generations of UK citizens—essentially, redistribution between taxpayers and lenders. It certainly has nothing whatever to do with redistribution between generations. What it can mean is that there is some impact on investment and the growth path of the economy, but that is very much economic policy—the very dimension that has been left out of Clause 1. That is why I want to introduce the word “economic” into Clause 1. I believe that this is exactly the point that my noble friends Lord Peston and Lord Barnett make in their amendment in this group. To make this entire story consistent across Clauses 1 and 4 and the reference to the promotion of intergenerational fairness, it seems imperative to introduce the word “economic” in the places suggested in the amendments. I beg to move.
Lord Higgins
I am having some difficulty in tracking down the reference to intergenerational transfers. Am I right in thinking that the wrong line is given in the noble Lord’s first amendment?
Lord Eatwell
It is in the charter, which is referred to in Clause 1, and I shall attempt to find it for the noble Lord. I have a fresh copy here rather than my marked-up copy. Paragraph 3.1 of the draft charter states that an objective is to “promote intergenerational fairness”.