Budget Responsibility and National Audit Bill [HL]

Lord Myners Excerpts

Monday 29th November 2010 Grand Committee

[Lord Oakeshott of Seagrove Bay]

My Lords, like the noble Lord, Lord Eatwell, I was rather struck by the word “intergenerational” in the draft charter for budget responsibility. The Treasury’s objectives for fiscal policy are to,

“ensure sustainable public finances that support confidence in the economy”,

which is fine, and,

“promote intergenerational fairness, and ensure the effectiveness of wider Government policy”.

Can the Minister tell me why we need the word “intergenerational”? It seems that one of the basic objectives of fiscal policy is to promote fairness and, of course, our coalition agreement holds fairness very high. Why do we need the word “intergenerational” here? As it is a draft charter, perhaps I may ask that the word be taken out from the final version.

[Lord Myners]

My Lords, I support my noble friend Lord Eatwell. I think that I need do no more than cite our debate a few minutes ago in the Chamber when the Minister repeated the Statement on the OBR made earlier today in the other place by the right honourable Chancellor of the Exchequer. The central emphasis of that Statement was the economy. It would seem therefore that the Government intend to use the OBR and the charter in support of it to give confidence to their economic projections. I therefore suggest to the Minister that no harm would be done, and considerably greater precision would be achieved, if the words proposed by my noble friend were inserted in Clause 1.

[Lord Higgins]

My Lords, am I wrong in thinking that the amendment refers to line 6 and not line 5 of the Bill? Be that as it may, no doubt we can sort it out if it is wrong. I have great sympathy with the view put forward by the noble Lord, Lord Eatwell. We shall see what response we get from the Government. Perhaps we may also have from the Government a little clarity with regard to the charter for budget responsibility, since it is described as a draft. Are we to understand that the Government will amend it in line with the comments made by this Committee or will we be able to amend it at some later stage more formally?

An interesting point was made about “intergenerational fairness”. I understand that we must be concerned with fairness generally, but we should realise also that the sudden introduction of this expression reflects a considerable change of view in the Treasury from previous years. It is of course possible for us to consume in this generation and pass on a lesser inheritance to future generations. However, if we are to appraise intergenerational fairness, we need not simply a government balance sheet, on which we have made a little progress, but a national balance sheet, which successive Governments have hitherto failed to provide. If the relevant paragraph is to have any credibility, we need further data. It would be helpful if the OBR could take a first shot at a national balance sheet. The argument that we should widen the charter a little from relating merely to implementation of fiscal policy seems reasonable, but I look forward with interest to hearing what my noble friend the Minister has to say.

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[Lord Sassoon]

I am grateful to the noble Lord, Lord Eatwell, for his explanation of how intergenerational transfers work. I am not sure what difference it makes to the analysis but, for better or worse, it is not the case that substantially all of the debt—he did not use that term—is held by UK citizens or bodies. The burden of debt that we have is well spread among international holders as well.

We should not get too far side-tracked. Intergenerational fairness is an important point, but the objectives for fiscal policy are, as I say, the background in the charter. People can see the context in which the critical elements of the Treasury mandate are set out in paragraphs 3.2 and 3.3 of the draft charter. Those are the two elements that bite particularly on the mandate of the OBR. The full objectives for fiscal policy include supporting and improving the effectiveness of monetary policy, which relates to the independent operations of the Monetary Policy Committee of the Bank of England. We must remember how the architecture fits together.

Let me say a bit more about the background to the charter. Its purpose is to improve the transparency of the fiscal policy framework and, within that, to include the guidance on the role of the OBR within the broader framework. The charter is concerned with fiscal policy and includes the Treasury mandate for fiscal policy. It was important to have that document for people to see ahead of this discussion. The fiscal policy framework is part of the Government’s overall approach to economic policy. Indeed, given the fiscal situation that the Government inherited, the coalition made it clear on its formation that reducing the budget deficit and setting public finances on a sustainable path to build confidence and to create the conditions for economic recovery were the overriding priority.

The noble Lord’s first amendment would require that the charter be expanded to relate to overall economic policy. Amendments 2 and 3 concern the addition of economic policy objectives, which means that we need to be clear about them. They are set out in the paper The Path to Strong, Sustainable and Balanced Growth, which was published today. To achieve the objective of delivering growth that is consistent with values of freedom, fairness and responsibility and to improve the well-being of the British people, the Government must employ all their macroeconomic and microeconomic policy tools and frameworks. I mentioned that monetary policy is operated by the independent Monetary Policy Committee of the Bank of England. That provides one set of tools that play a role in meeting the Government’s economic policy objectives.

It may be helpful to remind the Committee that the Bank of England Act 1998 provides:

“In relation to monetary policy, the objectives of the Bank of England shall be … to maintain price stability, and … subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.

I know that comments have been made about that, but it is probably not right this afternoon to go into the question of how all this works. The point is that the Bank of England Act does not set out the Government’s economic policy objectives. That is not what we are trying to inject—nor should we—into the legislation that governs the operation of the Office for Budget Responsibility.

Financial stability policies are similarly crucial to delivering the overall economic policy objective. The Government have taken steps to reform the financial stability framework, providing the Bank of England with control of macroprudential regulation and oversight of microprudential regulation. Also, microeconomic policies create the conditions for growth and they, too, are essential. Fiscal policy represents another crucial set of tools that the Government use to achieve the overall policy objectives. The charter is the place where, for the first time, we have a transparent exposition of the framework. However, the charter is not itself the framework. It replaces the code for fiscal stability, which was part of the previous fiscal framework. Replacing that code was recommended by the Treasury Select Committee. The code did not contain economic objectives. Therefore, the charter remains a document relating to fiscal policy and should not be expanded to contain overall economic objectives.

[Lord Myners]

Surely the “therefore” does not follow. Simply because the code did not include economic policy, it is wrong to say that therefore the charter should not. There is an opportunity, with the OBR and the charter, fundamentally to change the architecture with which we review and analyse the progress and success of the UK economy. I for one have warmly welcomed that from the opposition Benches, but the insertion of the word “therefore” in that sentence is simply illogical and misses the point of achieving the full potential that the OBR can offer.

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[Lord Peston]

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

[Lord Myners]

I quite recently sat in the chair in which the Minister is sitting and my experience is that the favoured word that comes from officials at Committee stage is “resist”. As my noble friend Lord Peston has pointed out, there is no need to resist. The purpose of this session is for the Minister to listen in a considered way to points made from the coalition Benches and the opposition Benches and to do us the courtesy of giving us a fair and reasoned explanation. The Minister has not done that. In fact, he has fallen back into the trap of the way in which he handles Written Questions, which is, on the whole, by completely ignoring the Question in the Answer that he gives. I plead that he seeks to answer the questions that are reflected in the amendments and, in particular, the observation from the noble Lord, Lord Oakeshott, that intergenerational is a specified fairness as opposed to a general commitment to fairness that I understood the coalition to support.

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[Lord Sassoon]

I am grateful to my noble friend for reminding us that the OBR should be set a focused mandate. It is then up to the OBR what it considers is appropriate, in its analysis, to explain as background to the mandate that it has been given. It is clearly neither necessary nor helpful to give this Bill different purposes from those that it has—to set a remit for the Office for Budget Responsibility, which is what the charter intends to do, and only that.

[Lord Myners]

Barely an hour ago, the Minister was telling the House that the OBR report had broken new ground in making employment and unemployment forecasts and what a wonderful step this was compared with what had happened under the previous Government. In response to the observation from the noble Baroness, Lady Browning, I believe that Sir Alan Budd’s reservation was that he had allowed OBR employment forecasts to be released one day early in order for them to be used by the Prime Minister in Prime Minister’s Questions rather than that he had any reservations about the OBR moving into the area of employment and unemployment.

To go back to the point of the amendment tabled by my noble friend Lord Eatwell, fiscal policy and economic policy are inextricably linked and the Minister has given us no good reason why the two should be treated entirely separately so far as the charter is concerned. My anxiety is that, unless the Minister provides us with better explanations on these points, the Committee stage will be wasted, because all these amendments will be repeated when the Bill returns to the House. The Minister is failing to make appropriate use of the opportunity that Grand Committee provides for such matters.

[Lord Sassoon]

I think that some noble Lords want to have it every which way. The fact is that within the mandate that the interim OBR is being given, it has felt it appropriate—and we welcome this—to set out forecasts for a wide range of things. It is not that these employment forecasts were not done before; it is just that the previous Government chose not to share them with the British public and the economic commentators. The 150-page document that has been put out today is the best indication that the OBR is not going to hold back on analysing and laying out the full background as it considers appropriate under the minimum forecast requirements set out in paragraph 4.10 of the charter. I suggest that we can take confidence from the fact that there is nothing that the OBR feels inhibited about in doing whatever is necessary to underpin the conclusions that it needs to come to on the fiscal mandate and in laying out the full forecast.

[Lord Myners]

May I briefly beg the noble Lord’s indulgence one last time? I take great comfort from what he says and I fully agree about the failures of the previous Government to disclose fully a wide range of economic forecasts. I cannot be more supportive of the OBR’s broad intention in this and in many other respects. However, there is a provision in the Bill under which the Government can give the OBR guidance, and that guidance stands above all others, including the point that the OBR should perform its duty objectively, transparently and impartially. Therefore, can the Minister confirm that the Government will not be using the guidance process in any way to restrict the OBR’s ability to comment on general economic matters? If the Minister could give us that assurance, it would give me considerable encouragement.

[Lord Sassoon]

I am grateful to the noble Lord and I confirm what he said about the broad purposes and the general greater transparency that flows from all this. I do not believe that anything in the Bill restricts the OBR’s ability, within its mandate, to lay out whatever it considers appropriate. Indeed, I do not think that anything in the guidance will dictate the methods of analysis that the OBR undertakes. The guidance absolutely cannot include provisions on that. The charter seeks to explain what transparency means. Perhaps it is appropriate to highlight paragraph 4.8 at the top of page 12 of the charter, which states:

“Transparently means that the OBR is to act openly, setting out with clarity the assumptions and judgements that underpin its work. It should proactively seek to make available its analysis. It should publish reports according to a regular and predictable process”.

It gives very wide latitude in the areas to which the noble Lord rightly draws attention. We are not seeking to circumscribe how it does this.

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[Lord Sassoon]

I am grateful to the noble Lord, Lord Turnbull, for pointing that out. I do not accept the analysis of the noble Lord, Lord Barnett. Yes, it is correct that, as exemplified by what we have seen today, the OBR indeed has the freedom to do what Members of this Committee are asking for, but that is not what these amendments are essentially about, as the noble Lord, Lord Turnbull, pointed out. Clause 1 is not about the Office for Budget Responsibility doing things; it is about the Treasury producing a document to be known as the charter for budget responsibility. We could require the Treasury to produce all sorts of documents laying out economic policy and a huge number of other things, but the point of the clause is for the Treasury to prepare a document, the purpose of which is to set the background against which the OBR does its work. I have obviously failed to explain it, but the very distinguished former Permanent Secretary has come to my aid to point out that the Bill will set up an office focusing on fiscal policy. That is why the charter relates to fiscal policy. We do not want to widen it out, as the noble Lord said, to a document that sets a background for this office to go into all sorts of wider economic commentary. That point, as my noble friend reminded us, was made by the Treasury Select Committee.

[Lord Myners]

That is why the Chancellor of the Exchequer and other Ministers must be very careful when they present the reports of the OBR to the committee. Clearly, in the other place, as repeated in our House, the report of the OBR was given by the Minister as an economic commentary. In the Minister’s response to questions, he used the OBR to validate the correctness of the Government’s economic strategy. The noble Lord said earlier that we cannot have it one way and then the other. I suggest that he and the Government cannot either. I hope that he will now answer the question asked by the noble Lord, Lord Higgins.

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[Lord Turnbull]

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

[Lord Myners]

My Lords, we all now wait with bated breath to see whether the word “resist” appears on the Minister’s brief. Perhaps I may share my own experience with the Committee. When I became a Minister, I was told that of course there would be some duties in the House of Lords but that I should not worry about that. In fact, every effort would be made to reduce those duties to an absolute minimum. I came to the conclusion that most people in the other place had a very poor appreciation of what happens in the House of Lords and of the excellent work that this House does, particularly in revising legislation. That is particularly pronounced in the Treasury. When I became a Minister in the Treasury, I found that there was almost no institutional knowledge there about the processes of the House of Lords. The noble Lord has succeeded me as a Peer based in the Treasury, but you then have to go back 25 years to the noble Earl, Lord Caithness, to find the last Member of the House of Lords who was a Treasury Minister, and another 10 years before you come to Lord Cockfield, who was a GOAT in his own day, although not so described. The Treasury starts with a disposition that matters to do with the economy and finance should not detain the House of Lords. Therefore, the purpose of the amendment is correct in ensuring that the House of Lords is respected in the contribution that it can make by virtue of the breadth of experience represented on the Benches. I support the amendment.

[Lord Barnett]

When I was Chief Secretary to the Treasury, I could not care at all what the House of Lords was doing about Finance Bills, because it could not amend them. The noble Lord is quite right. My noble friend Lord Davies was my PPS for much of that time, and he knows that one place we did not care about was the House of Lords, because it could not amend our Bills.

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[Lord Myners]

I shall bear that in mind. If the Minister is struggling to keep up with his work, I will obviously make an effort to lighten the burden on him. However, I hope that he makes a serious effort to answer Written Questions. There are some examples in Hansard today which are so far from the mark in terms of attempting to answer the Question that they treat the House with a disregard which is inappropriate.

[Lord Oakeshott of Seagrove Bay]

It is not just under this Government that that has been happening; it is a problem with the Treasury generally, although it has been happening particularly under this Government. If the Treasury made a bit more effort to answer Questions honestly and fully the first time, we would not need to ask them two or three times. It is a bad problem.