Budget Responsibility and National Audit Bill [HL]

Lord Newby Excerpts

Wednesday 1st December 2010 Grand Committee

[Lord Barnett]

Listening to the previous debate, I am even more confused than I was before about which staff are now being employed by the OBR and what the plans are for the future. Perhaps the noble Lord can help us on that. I know from a Written Answer in which I got a proper answer from the noble Lord that 12 Treasury members were still working officially for the OBR—full time, I assume. As I now understand it, having listened to the previous discussion, there are a lot of non-executive members as well as executive members. Quality will be required in the new members of the OBR, but they will not necessarily be non-executive or executive members.

I do not quite understand what we are talking about when we refer to “staff”. For example, I understand that Robert Chote, quite rightly, retired from his position as head of the Institute for Fiscal Studies. I am not clear whether that institute is continuing with another head. I think that it probably is. I see the noble Baroness, Lady Noakes, nodding—perhaps she is the new chair—but it is just adding to the 50-odd independent forecasters that we have, or whatever the number was before, plus one. I should be glad if the noble Lord could clarify that.

In Amendment 12, my noble friend Lord Peston and I say that the staff must not be civil servants, because we were both worried about them either remaining as officials of the Treasury or being temporarily transferred to the OBR, which we would not find very satisfactory. The whole point about the OBR is that not only must it be independent, which I am sure it will be, but it must be seen to be independent. If we are not careful, because of its proximity to the Chancellor and the Treasury, it will not necessarily be seen to be as independent as it should be. For example, on the previous amendment my noble friend Lord Myners talked about the OBR moving its office to Victoria Street. However, it may be moving to the offices of the Department for Business, Innovation and Skills for all I know. Perhaps the Minister can clarify that as well. My noble friend was worried about whether they would have to keep traipsing backward and forward between the OBR offices and the Treasury, rather than inviting any Treasury officials to whom they want to talk to come to them. The foreword of the recent OBR report makes it clear that it sees not only the Treasury. It states that,

“we have also drawn heavily on the help and expertise of officials across government”.

There is a whole load of them, including Revenue and Customs, and the Department for Business, Innovation and Skills. The OBR officials go to lots of offices, so there is a wide-scale connection with government. I do not object to them seeing officials in government departments—that is sensible—but it makes me wonder, when I see the number of departments that the OBR visits, just how big it is, or is going to be. Perhaps the noble Lord, Lord Sassoon, could tell us how many staff the OBR has now, how many are full time, how many are part time, how many are quality, how many are not quality—doing the footwork, you might say—how many are experts, how many are executive, and how many are part-time executive. For example, are Robert Chote and the two people with him full time or part time? I do not know. Unfortunately, I have not seen the minutes of the Treasury Select Committee, where the answers may have already been given. Perhaps the Minister can tell us. I beg to move.

[Lord Newby]

My Lords, the provision in paragraph 8(2) of Schedule 1is sensible. It states:

“Staff are to be employed on such terms as to remuneration and other matters as the Office may, with the approval of the Minister for the Civil Service, determine”.

Surely that is the sensible way of doing it, with the chairman deciding which staff he wants. It would be slightly surprising if none of them came from a Civil Service econometrics background, which would bring strength to the office. Just because they have come out of Whitehall does not mean that they are somehow tied hand and foot to Treasury thinking. No doubt, people will come in from academia and elsewhere. It is for the chairman himself to decide who the best people are to do the job.

[Lord Turnbull]

I support the noble Lord, Lord Newby. As I understand it, the number of staff would be around 20. Some may be seconded from the Treasury, some may be brought in from academia, and some may come from somewhere else. It is basically for the chairman of the OBR to assemble the best team that he wants, and we should not fetter that discretion, because there is a safeguard in Clause 5(2), which states:

“The Office must perform that duty objectively, transparently and impartially”.

In other words, anyone who is on loan from another government department is subject to that duty, which should ensure that the right degree of independence is maintained. If you say that someone with a Civil Service career must resign from the Civil Service in order to go and work for the OBR, you will raise all sorts of issues relating to pensions, seniority, this, that and the other. You will make it difficult to assemble the best-quality team, and that should be paramount.

[Lord Peston]

My Lords, I am not in the least concerned about the precise drafting of amendments, because all our proceedings in Committee are exploratory. The central point is that the staff of the OBR should be simply the staff of the OBR—end of story. It needs to be made clear that they are not other staff. The purpose of the amendment is to say categorically that these staff are now the staff of the OBR. I take it for granted that they will be full-time rather than part-time staff. This has nothing to do with the chairman or others choosing the best people; it is to do with the status of the staff. That is all the amendment is about. They should be the staff of the OBR and therefore, unless the law is changed, they will not be the staff of the Treasury or of anywhere else. My noble friend Lord Barnett and I would like a simple answer from the Minister. Are the staff the staff of the OBR? That can be answered with a yes or no.

[Lord Newby]

My Lords, perhaps I may ask the noble Lord, Lord Peston, a quick question. Is he opposed to any staff going on secondment from the Treasury to the OBR?

[Lord Peston]

Yes, categorically. The Bill refers to them as the staff of the OBR. We can argue about language, but if somebody asks who my staff are, I say, “He works for me and so does he. They are on my budget and they are my staff”. Sorry, I should have said “she”. If someone said to me, “Actually, they are not, they are Treasury officials on secondment,” I would not regard that as a correct use of the words “my staff”. The Minister may agree with the noble Lord, Lord Turnbull, that the point made by my noble friend Lord Barnett and me does not matter, and may be perfectly happy for them to be on secondment, work part time and so on. If that is the position, I would like to know. My position is that an independent body appoints its own staff, and they are its staff.

--- Later in debate ---

[Lord Myners]

So, the OBR will have its own information staff—it will not be relying on the Treasury for that. Of the 13 people, there is now minus one who is doing FOI; minus two was a PA. I must note that when the noble Lord, Lord Sassoon, was an employee of UBS Warburg, he probably had more than 13 PAs, let alone 13 staff. Can he confirm that that number now includes a freedom of information officer in the OBR, and that it does not rely on the Treasury for that function?

[Lord Newby]

Surely there is an easy solution: make the PA also responsible for freedom of information.

[Lord Sassoon]

It is clearly up to Robert Chote how he deploys his staff and what they do. Noble Lords obviously have not quite grasped what is meant by the independence of the OBR. It means that it is for the office to organise its life. I have not the faintest idea how it will do it, but I am sure that it will do it professionally and appropriately and that it will devote the necessary resources.

In answer to another question, I was going to quote from page 3 of the OBR report to summarise the contacts that it has had in the build-up to producing its 150 pages, but the noble Lord, Lord Turnbull, has already pointed to the key paragraph. The OBR made it clear that it would publish the list of contacts, which, as it promised, is coming out this week, shortly after the publication of the report.

Nothing in the Bill stops the OBR publishing any minutes, reports or documents of any kind that it wants to. As well as focusing on the critical point that we should not require it to produce minutes for the sake of minutes when the output is forecasts rather than policy-making discussions, it is also important that we should recognise that if it wants to disclose anything about the way in which it goes about its business, it is entirely free to do so. It can draw on external expertise. It might have committees with external experts. There is nothing to preclude that. The core executive functions cannot be delegated, though, and the minimum output will be the two formal reports per year. However, it is already also producing a considerable amount of other information, and it will do so in future. It is for the office to be as transparent as it thinks is appropriate, consistent with its mandate.

I do not for one minute take this to be a trivial point. I made the comparison with the MPC because it is critical. However, the amendments would require the OBR and the BRC to do a number of things that on the one hand are not required—consistent with the principles of accountability, transparency and independence—and, on the other, would put minor straitjackets on it that are not necessary because it should be free to publish whatever it sees fit to publish.

This has been an interesting discussion. I am sympathetic to some of the objectives that are desired, but I am afraid that the amendments in this group do not add anything to the underlying purposes, which I understand are well intentioned. I ask noble Lords not to press their amendments.

--- Later in debate ---

[Lord Sassoon]

Perhaps I may try again. Under Clause 4(1) it is the duty of the office to examine and report on the sustainability of the public finances. For the reasons explained by the noble Lord, Lord Burns, it would be difficult to report on the sustainability of the public finances without having regard to a lot of things, including—critically and at the centre—government economic policy. That links to what is laid out in the charter. If there is any doubt about whether the office will take account of government economic policies, as opposed to any other economic policies, we should look at Clause 5 for guidance on how the main duty is to be performed. The first point, which is important, is that the office has complete discretion, subject to certain subsections. Therefore, there will be a raft of approaches and other considerations that it can bring in if it considers them to be relevant.

We may then go on to subsection (3), having established that the OBR could not exercise its main duty without having regard to economic policies. Clause 5(3) makes it abundantly clear that when it looks at economic and other policies, it must have regard to any relevant government policies—not just economic policies, or economic policies defined in the widest sense by the noble Lord, Lord Burns. Under Clause 4, the office must have regard to economic policy; otherwise, how on earth would it start to look at sustainability? Clause 5(3) makes it clear that the policies that it must have regard to are not alternative policies but the policies of the Government. It is clear if one follows it through.

[Lord Newby]

Everybody agrees on the substance. The problem is that the Minister is trying to turn words that are inelegant and the wrong way round to mean what we all agree on. Without wishing to claim the fee of a parliamentary counsel, it seems to me that we could deal with this simply by redrafting subsection (3) to read: “The office must perform that duty, taking account of any government policies that are relevant to the performance of that duty. It may not consider…”

[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”.

Autumn Forecast

Lord Newby Excerpts

Monday 29th November 2010 Lords Chamber

[Lord Sassoon]

My Lords, earlier on I thought I heard the noble Lord, Lord Eatwell, describe 2010 as the year of Labour policies, but he said it so sotto voce that I left it there. The noble Lord, Lord Soley, now talks about the strength of the economy this year as being down to the previous Government’s policies. I remind noble Lords of what the OBR says about the reason why growth is now forecast by it to be much stronger in 2010 than had been previously forecast. It is principally down to the confidence of industry in restocking. That position has changed in its forecasts since June. I wonder where that confidence comes from. It comes from the fact that we came in in May and took immediate and decisive action to get the economy under control, which has resulted in British business restocking because it knows that sustained growth is coming. Let us stop going on about this and celebrate the fact that the growth is there and that industry has the confidence to understand precisely that.

[Lord Newby]

My Lords, can the Minister confirm that, at the end of this period, with job losses in the public sector being 160,000 fewer than was predicted earlier on in the year, there will in fact be over 350,000 more people working in the public sector than when the Labour Government came into office in 1997? Can he also give an estimate of how much less the reduction in private sector employment will be as a result of this revised forecast over the forecast in June?

[Lord Sassoon]

I am very grateful to my noble friend. I can confirm the figures that he quoted. The relevance is that, for all the rebalancing of the economy that we are doing and the very significant rebalancing of the welfare system, the shift of jobs out of the public sector is now very significantly below what was achieved even within the past 20 years in the early 1990s. Therefore, we should have confidence in the productive capability of the private sector to absorb that number of jobs many times over. I can only stand by the figures for the net increase of employment that are set out by the OBR in its tables.

Budget Responsibility and National Audit Bill [HL]

Lord Newby Excerpts

Monday 29th November 2010 Grand Committee

[Lord Eatwell]

I introduced the charter into this in the sense that Clause 1 refers to the charter for budget responsibility and we have the draft before us. I do not think that it will be subject to parliamentary scrutiny. It will be placed before Parliament but will not be subject to scrutiny. I was therefore taking advantage of the Committee because, as the draft charter has been published, we have the opportunity to discuss it.

[Lord Newby]

Just as a point of clarification for the noble Lord, Lord Eatwell, 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”,

so it has at least vestigial parliamentary scrutiny.

[Lord Sassoon]

I shall explain the way I see it and deal with the things that may be relevant this afternoon. We are talking about the charter, which we have produced in draft to aid scrutiny of the Bill. I hope that people will think that that is helpful. There were, quite rightly, demands to see it, which is why we produced it a week ahead of the Committee stage. It will be formally laid in another place following Royal Assent to the Bill, so it necessarily remains in draft until that point. We will listen carefully and, if there are issues that touch on the charter that could in our judgment improve the drafting, we will take them on board.

The relevance of the charter is how it fits with the architecture relating to the responsibilities of the OBR. We also have to remember that certain things in the charter do not directly relate to the fiscal mandate but are background information to it. I take the point that we should not get too far into discussions of irrelevant things, but intergenerational fairness is part of the fiscal objective that is in there as background information to the fiscal mandate, which comes in the subsequent paragraphs and links directly to the responsibilities of the Office for Budget Responsibility. The noble Lord, Lord Eatwell, is correct that intergenerational fairness can take on different definitions, but here we are using the term in a fiscal context to mean that future generations should not be burdened by deficits or the cost of servicing debts accumulated to pay for consumption by current or previous generations.

--- Later in debate ---

[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.

[Lord Newby]

I rise to support the noble Lord, Lord Barnett, and possibly to bring to the Minister’s attention the fact that when the Monetary Policy Committee was established, a specific committee of your Lordships’ House was established for the sole purpose of reviewing the way in which that committee worked. There can be no issue of propriety about whether the House of Lords should have a role here. This raises a broader question about the coalition’s view of the role of the House of Lords on financial and economic matters. The previous Government and the former Prime Minister were almost implacably opposed to this House having anything to do with economic affairs, which I thought was a pity because there is clearly expertise here. Last week, we discussed ways in which the House of Lords might play a part in tax policy-making. That would be very sensible as well and it would form part of the piece, along with these amendments, under which the House of Lords would have an enhanced role.

[Baroness Noakes]

My Lords, if this document is really about fiscal policy and the fiscal mandate only, it is entirely logical that the approval of the charter and the other matters referred to in the other amendments in this group should be for the other place. If it were widened to include economic policy, which most of us here, with the exception of my noble friend, favour, then it would be entirely logical for it to be widened to include the House of Lords, but I believe that, as currently drafted, it is entirely logical to confine it to the other place.

--- Later in debate ---

[Lord Newby]

I almost agree with the noble Lord, Lord Turnbull, but it would strike me as slightly odd if at this stage, when the office is being established as the definitive independent forecaster on which the Government are going to base their actions, the Government retained the right the disagree with the OBR and carry on as though it did not exist. In terms of the central forecast, it would be a bit like having a dog and barking yourself. Perhaps the Minister can give us an example of a circumstance in which the Government envisage they might invoke that right.

[Baroness Noakes]

I do not quite agree with my noble friend Lord Higgins on this. In particular, the prohibition in Amendment 7 on the Treasury making economic forecasts does not appear realistic. I know that we are concerned that there will be a recreation of the functionality that has now been transferred from the Treasury to the OBR, but the plain fact is that the Treasury has to consider whether to accept the forecasts. It may wish to disagree and, if it cannot do its own forecasts, how is it going to deal with that position? This is a very difficult area but I do not think that it would be right to legislate in this way.

My noble friend’s Amendment 38 made me look at Clause 8. This is a small point but I should be grateful for my noble friend’s comments. He suggested that the OBR need not send a copy of its report to the Treasury. Can he explain how this quango lays a document before Parliament? Does it not normally go through a government department to Parliament? It was always my understanding that documents were laid via Ministers, although I may be wrong.

Finance (No. 2) Bill

Lord Newby Excerpts

Monday 22nd November 2010 Lords Chamber

[Lord Newby]

My Lords, I congratulate the Minister on the brevity and clarity of his exposition of this brief Bill. I was not looking forward to a 20-minute exposition of Clause 10, for example, and I was pleased that he dealt with it with such expedition. I shall base what I say today on an issue on which the Minister touched, which is how we make tax policy. During my time in the House, making tax policy has been characterised by a number of unsatisfactory features.

First, we have had hugely long Finance Bills, often with 500 pages of legislation, which I think have meant that, cumulatively, we now have the longest tax code of any country in the world. Secondly, these Bills have been produced with little or no consultation on huge chunks of them, with the result that they have sometimes been very poorly drafted and have had unintended consequences which have required the provisions to be repealed within short order.

Lastly, we have in your Lordships’ House established a mechanism for beginning to look at aspects of the Finance Bill through the sub-committee of the Economic Affairs Select Committee, which had one advantage. It meant that there was a certain amount of deliberative consideration of the non-political parts of the Bill—not the rates but the structure—and that officials and experts were able to give evidence and a report was produced. That was the good news. The bad news was that, partly because of the timetable and partly because of the attitude of the Treasury, it was almost entirely wasted time in terms of any effectiveness in what was, for those who were on the committee and their advisers, a very intensive period of work. This system of making tax law was fairly dysfunctional in many respects.

Some aspects of what the Government are now proposing are a great advantage. There is an advantage in producing, in effect, a draft Finance Bill with all bar the rate changes in it, several months before the Budget. In this case, I think it will be three and half months, which gives interested parties plenty of time to make suggestions. I hope that the spirit of accepting amendments that has been adopted with this Bill will be followed through as we move forward. One of the things that is clear in the way in which Finance Bills have been dealt with in the past—I am sure that this was the case when the noble Lords, Lord Sheldon and Lord Barnett, were dealing with them—is that, once the Bill gets before the House of Commons, the Treasury has no appetite for making the slightest amendment on the smallest comma, because in a sense that would undermine its omnipotence in the original drafting. The new procedure breaks away from that unsatisfactory way of doing things.

The other welcome development, which the Minister did not mention, is the establishment of the Office of Tax Simplification. One of the paradoxes, not just in our tax law but in law generally, is that it is easy to make it more complicated but difficult to make it simpler. It is a positive development that some real experts are now spending time cudgelling their brains on how to make aspects of the tax system simpler. I think that it will be a long job before they can claim total success, but it is a move in the right direction.

I have three suggestions for how the process could be improved even further. The first concerns the documentation that is produced at the time the draft Bill is published. I think it is the case in the US that the Treasury there spends more time in its Green Book than is typically the case here in our Explanatory Notes on explaining the reasoning behind the change. That has the advantage that those looking at the draft legislation can form a clear view about whether it is likely to achieve the aims that are set out for it. Sometimes the Explanatory Notes explain literally what the clause says but do not really explain with any clarity why it has been done in that way, or indeed why it has been done at all. There is an enhanced role there for explanation.

Secondly, it is not clear to me that there is an enhanced system of parliamentary scrutiny, either in place or planned, to take advantage of this three-and-a-half-month window that we now have with regard to draft Finance Bills. I know that the Treasury Select Committee in another place will look at this, but that committee has a very full agenda. I wonder whether its members will feel that this should be their top priority when they are looking at so many other things and have such little technical advice to assist them—it is a tough job trawling through all this stuff. As I say, I am not absolutely sure that there is a huge appetite for this in another place.

That brings me back to our own approach. There is now an enhanced opportunity for the sub-committee of the Economic Affairs Select Committee to look at the draft clauses of the new Finance Bill in the way that it has up to now; namely, by taking evidence from Ministers, from officials and from interested parties and then producing a report, but this time producing a report that gives the Government time to consider it fully before the Finance Bill proper is published. It is to be hoped that the Government will see that sub-committee of your Lordships’ House as having significant status when it looks at making changes between the draft Bill and the final version.

Thirdly, it was a retrograde step when virtually all responsibility for tax policy-making was taken away from HMRC and brought into the Treasury. I declare an interest as a former policy adviser on tax to HM Customs and Excise. For much of the Finance Bill one is talking about very technical provisions. I am yet to be persuaded that the Treasury has either the expertise or, frankly, the appetite for the kind of detailed consideration of tax policy that those officials in the revenue departments of old did. They often spent their entire careers working on tax policy, which meant that they had encyclopaedic knowledge of the taxes on which they were advising Ministers. As I say, I am unconvinced that the new arrangements, which have brought that power into the Treasury, are good for either the Treasury or HMRC, which is now being forced to be an executive arm only, rather than a policy-making arm. As these are the people who must make the policy work, they should have a bigger input into it.

As I said in the early part of my speech, the new timetable gives many more opportunities to ensure that tax legislation is better produced than in the past. I look forward to seeing these other developments, which should improve it even further, being adopted by the Government.

Ireland: Financial Assistance

Lord Newby Excerpts

Monday 22nd November 2010 Lords Chamber

[Lord Sassoon]

My Lords, I am not going to provide a commentary on the Irish economy. As I said when I repeated the Statement, Ireland will come forward with its own budget. It is for the Irish Government to explain their own economic policies in this difficult situation, and for the conditions of the loan to be appropriate to the circumstances.

[Lord Newby]

My Lords, we on these Benches welcome the Government's decision to support the bailout. I am depressed but not surprised that the Chancellor feels that if he is giving support via a European fund, that is not to be welcomed, whereas if he is signing the cheque directly from the British Exchequer, that is great. However, no doubt that is politics. Perhaps I may take up the question of the noble Lord, Lord Reid, and the Minister's response, on the subject of the IMF and conditionality. As the Minister said, the IMF has a long track record of conditionality on the loans that it has made. Sometimes the conditions have been extremely contentious. What can the Minister say about the loan conditions that are being discussed? For example, have the partners who are making the loan pressed Ireland on its tax rates?

[Lord Sassoon]

I am grateful to my noble friend for his questions. In response to his first observation, I point out that the Government do not accept the general principle that we should participate alongside eurozone members in bailing out eurozone countries. When it comes to putting in place the permanent bailout arrangements that will be discussed in Europe in the coming months, it is the intention of the coalition Government that we should not be part of any such arrangements. The normal process should be that the eurozone is responsible for its own processes. I cannot go into any more detail of the terms of the package which is being negotiated, but my right honourable friend the Chancellor has said that he will come back to another place when he has more to report.

Health: Private Medical Insurance

Lord Newby Excerpts

Monday 15th November 2010 Lords Chamber

[Lord Sassoon]

My Lords, I am happy to confirm the really critical point, which is that the National Health Service is available to the population as a whole and that this is therefore an area in which the nation has access to the best-quality healthcare. If, on top of that, people wish to invest their money in private healthcare policies, it is important that those policies work effectively. However, as the noble Baroness points out, it is critical that the health service is there for everyone. As she raises the question of complaints, it is worth pointing out that the complaints that are relevant to this Question are those that go to the Financial Services Authority or the Financial Ombudsman Service. The latest figures that I have are for 2008. There were 514 complaints to the Financial Ombudsman Service in that year, of which 170 were upheld, and that represents one complaint upheld for every 8,000 people treated under private medical insurance.

[Lord Newby]

My Lords, the Minister says that the FSA is content that the system is working well. However, does he accept that many people who feel that they have been let down by their policies do not share that view? As the noble Lord, Lord Crisp, pointed out last week, this problem seems to be more general than just one or two people not reading their instructions properly. Could the Minister possibly go back to the FSA and ask it to look at this problem again in the light of the concerns that have been raised about it in recent months?

[Lord Sassoon]

I thank my noble friend for raising that point. Of course I am happy to convey to the FSA the points that have been raised this afternoon.

Budget Responsibility and National Audit Bill [HL]

Lord Newby Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Newby]

My Lords, I, too, welcome the Bill. When the proposal first came forward for the Office for Budget Responsibility, I regarded it as a gimmick. However, a number of things since then have persuaded me that I was wrong. First, when we discussed the statistics Bill several years ago, we discovered that only 17 per cent of the population believe any government statistics. Whether that is a rational view is irrelevant; the way in which politicians down the years manipulated official statistics left them with no credibility whatever. Therefore, a number of things needed to be done. Fortunately, the new structure of the Office for National Statistics is improving that figure, but it was a salutary reminder that, whereas we may take statistics seriously, politicians and Ministers have fallen so low in public regard that we are atypical.

Secondly, it became clear, not least from reading the book of the noble Lord, Lord Mandelson, that the previous Prime Minister and Chancellor believed that growth figures were a matter for political manipulation. It is absolutely clear that that is what Gordon Brown sought to do. This gives me another reason to believe that we have to take that power and oversight away from the Treasury. During Gordon Brown’s chancellorship, we had the delightful business of the golden rule and the way in which it was stretched, expanded and diminished to fit the requirements of the Chancellor. It is fascinating to hear the huge support of the noble Lord, Lord Eatwell, for these principles of independence. He shows all the zealotry of a convert. Certainly, while his party was in government, nothing was done to promote the principles that lie behind those parts of the Bill. That does not necessarily mean that his criticisms—

[Lord Eatwell]

My Lords, would the noble Lord like to make it clear that the independent structure of the Office for National Statistics was implemented by the Labour Government?

[Lord Newby]

My Lords, the structure was implemented by the Labour Government but, if it had not been for this House, the body would have been emasculated. The current structure is miles away from the feeble structure that came before your Lordships’ House. It required a cross-party coalition of former senior civil servants and Members from other parties to change virtually every aspect of that Bill, so that when it left your Lordships’ House it was almost unrecognisable. That is why the noble Lord is right to want to subject this Bill to careful scrutiny about whether it will achieve the aims that have been set for it.

Three areas deserve the scrutiny that the noble Lord has set out. It is important that the structure, the people and the role are right. First, the structure is slightly odd in some respects. The role of the chair and the way in which that person is appointed by a transparent appointment procedure obviously make sense. The other two members of the office are being scrutinised by the Treasury Select Committee and clearly must have relevant experience. Their roles are relatively clear, although it is not clear to me whether the Government envisage that these will be full-time or part-time roles. I find the context of the other non-executive directors strange in relation to this body and I am not sure what their role will be. I was slightly surprised by the use of the phrase “at least two”. If the chair decided that he would like half a dozen, would that be acceptable? More important, what role will they play? They will not be technical people, but much of the work of the office will be intensely technical. Will their role be to protect the independence of the office in some way and to proselytise about the role of the office? It would be helpful to have further clarification from the Minister on that.

Secondly, three positive aspects of the way in which the top people will be appointed will be crucial to the success of the body. First, they will be in place for five years, which is a long time. Secondly, unlike for members of the MPC, for example, the recruitment process will be open. It will not be a matter of the Chancellor ringing up someone on a Sunday evening and saying, “I’d like you to take this job and, by the way, I need to know by Monday morning”. Thirdly, the role of the Treasury Select Committee is important as regards the quality of the people involved. The Government have made a good start by their appointment of Robert Chote as the first chair of this body.

The third area where the noble Lord, Lord Eatwell, has demonstrated that there is room for further discussion is the remit and how it will work. I do not think that the word “independent” appears in the Bill, which is slightly surprising. There is some ambiguity about where the independence of the body starts and stops. We know from many other areas of public life that, if you give the Treasury an inch, its inclination is to take a mile. I look forward to discussions in Committee, where, I hope, we can clarify that slightly.

I do not think that the Government would be sensible to take up the generous offer of the noble Lord, Lord Eatwell, of a hugely long period of scrutiny on this. This body is of great significance and there has been a lot of public debate on it already. We have the opportunity in your Lordships’ House to debate all these technical issues carefully, as we always do, and so will those in another place. We need to get the formal infrastructure on to the statute book now, without further considerable delay. With those caveats, I am looking forward to the Committee stage and I support the Bill.

Private Finance Projects (EAC Report)

Lord Newby Excerpts

Wednesday 3rd November 2010 Lords Chamber

[Lord Newby]

My Lords, I commend the committee on this extremely interesting and timely report and my noble colleague Lord Vallance for his clear introduction to today’s debate. I was amazed, in reading the report, to see that, despite the amount of political discussion there has been on the subject, there has been no comprehensive review of PFPs by any parliamentary body for a decade. This report certainly helps fill that gap. I was also surprised, as the NAO pointed out, that there is no apparent robust and systematic evaluation of the use of private finance at either a project or programme level across government. So it is no wonder that it has proved so difficult to form a definitive view of the effectiveness of PFPs and no wonder that so much of the political debate on the subject has been so ill informed.

However, the report points out that PFPs have a better record of being produced on time and to budget than traditionally procured projects. For the period ahead, as we look to radically update our infrastructure, private finance is clearly going to play an even greater role. One has to accept at the start, as the noble Lord, Lord Lipsey, pointed out, quoting the NAO, that this model does not work for everything. In some areas where it has been tried—London Underground being one example—it has failed pretty spectacularly. In other areas, such as defence and IT projects, the basic underpinning concept does not work very well because you cannot, at the end of the day, transfer the risk so the Government end up bearing the risk. So there are clear limits to where this approach is the most appropriate.

However, in many areas it clearly has worked relatively effectively and, given that the estimate of the infrastructure expenditure we need over the next decade in the UK is £400 billion, we are clearly going to need to look to sources of funding beyond general taxation to meet the majority of that. I wanted this afternoon to concentrate on looking at the funding of future infrastructure projects in the UK. In some respects the UK should be relatively well placed to attract the funds. In a report produced and published yesterday by Berwin Leighton Paisner, 85 per cent of the experts on infrastructure it surveyed believed that the climate for global investment in infrastructure would improve over the years ahead, and that the UK was considered the most attractive location for delivering infrastructure projects anywhere in the world, but that the availability of funds would be a major constraint. Fifty-nine per cent of the respondents to that survey saw PFP as being important or very important in stimulating demand for infrastructure investment.

In the report, the committee looks at potential sources of funding for infrastructure investments and specifically refers to pension funds as an area of potential. It is interesting that at the moment UK pension funds lag behind in the proportion of their funds that go into infrastructure investment. In the UK, only 0.5 per cent of pension fund investment goes into infrastructure compared with 2 per cent in the Netherlands, between 4 and 5 per cent in Australia and as much as 10 per cent in Canada, so there is clearly considerable scope if the structures are right for greater pension fund involvement in this sector.

There are clearly significant amounts of overseas funding looking for a home in UK infrastructure. I understand that the Mayor of London’s office is regularly approached by potential investors, including sovereign wealth funds, that are looking to invest in infrastructure in London because they see it potentially as an extremely safe, long-term bet. Does the Minister believe that at present there is an effective way of capturing approaches that are coming in to the UK, to the mayor’s office, to central Government or elsewhere, from sovereign wealth funds and others that are looking to invest in infrastructure? At the moment, I am not sure who I would tell any such person to approach in government, and I do not know how successful we have been in converting such approaches into the hard cash that we need.

A further area that is cut out for infrastructure expenditure is the sukuk model of Islamic finance. An asset-based approach to finance could be developed very significantly here. Given that that sector is increasing by 20 per cent a year globally and that there are already very strong links and a very strong Islamic finance sector in the UK, that is a specific area that we could look at further.

The noble Lord, Lord Lipsey, referred to the national infrastructure bank. The report refers to the European Investment Bank, which is committing €1 billion a year to the UK. There is a wonderful quote in the report from Mr Simon Brooks who said that it would be ridiculous to introduce an investment bank in the UK. He said,

“nobody in Europe needs to introduce a NIB because they have got us!”.

We may have the European Investment Bank, but if the sum total of its potential in terms of the UK is €1 billion a year, it is clearly not going to fill the gap. I am a lot less sceptical than the noble Lord, Lord Lipsey, about the potential of the green investment bank because, as the Wigley report pointed out, there are a number of areas of market failure in the area of infrastructure investment which can be met only by new mechanisms of financing, and the green investment bank is potentially one of them.

The big question about a lot of this kind of expenditure is that it will take place only with some sort of government guarantee: underwriting, a cap of risk or some sharing of risk. The obvious example is that if we are going to build the high-speed rail link with private finance, investors are almost certainly going to need to be guaranteed a baseline level of revenue if they are to invest the billions of pounds that will be required. I welcome the Minister’s view on this. The role of government is hugely significant here, not just because many projects will not go ahead at all unless there is an element of government underwriting, but because the cost of financing the projects will fall to the extent that government accepts some of the risk. I was interested and intrigued by paragraph 3.16 of the National Infrastructure Plan, which came out last week:

“Reducing the cost of capital by reducing the level of risk transfer to the private sector has the potential to achieve considerable cost savings. A one per cent reduction in the cost of capital on a total infrastructure investment programme of £500 billion is worth £5 billion per annum”.

That is significant money, and the attitude of government towards accepting risk will therefore be crucial. Unfortunately, having made that immensely interesting comment, the National Infrastructure Plan gives no indication of whether the Government are therefore going to take their own advice, but risk is central to infrastructure expenditure more generally and to PFPs in particular.

There is great potential in infrastructure expenditure and investment in future using the model that is described in the report if the Government and the private sector can build on experience to date and look to more flexible and innovative ways of developing it in future.

Comprehensive Spending Review

Lord Newby Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Newby]

My Lords, no doubt the CSR makes me, like many other noble Lords, angry and frustrated—angry that the US and British banking systems landed us in a major financial and economic crisis; angry that the previous Government had been spending like there was no tomorrow, with big government deficits in every year since 2002; and angry and frustrated that in attempting to clear up the mess we have often been portrayed, as the noble Lord has just done, as latter-day scrooges who take a perverse delight in reducing public expenditure, when nothing could be further from the truth.

There is no doubt that the deficit had to be tackled decisively. We can argue whether the aim should be to eliminate it over the lifetime of this Parliament or over a slightly longer timescale. Labour argues that the timescale that we have adopted is a gamble. Perhaps it is, but Labour’s policy—to the extent that we can discern it—is simply a gamble of a different sort. The noble Lord today failed yet again to spell out how Labour would save even £1 of the tens of billions of pounds which it is committed to cut from public expenditure. Frankly, until it does, it has no credibility with me.

These arguments are, however, in my mind now secondary to the main challenges facing the British economy and the operations of the state when it comes to taxation and expenditure. There are two principal challenges which I believe we face and against which this CSR should be judged. First, almost every aspect of our taxation and expenditure systems is no longer fit for purpose. Secondly, we have not responded effectively to the fundamental change in the world economy that is now in full swing.

Take the way we do things. Almost wherever one looks, our public expenditure and regulatory systems have become so complex that they cannot deliver effectively the outcomes that they seek. We have a benefits system that makes the Schleswig-Holstein question look like child's play; we have a pensions system that is confusing and obscure; we have a tax system that is now the most complex in the world and which almost certainly no one—literally no one—fully understands; and we have a regulatory system that stifles initiative in almost every area of public life.

Because we have to cut public expenditure, we are being forced to look afresh at the way we do all these things. This is long overdue and can lead to positive outcomes. I shall give examples. The Building Schools for the Future programme is being cut, but not before another 600 new schools are built. It has been announced that these schools will have to be built at 40 per cent less cost than has been the case until now. This sounds an impossible aim, until you read the document produced by Balfour Beatty that explains how it thinks it can save 30 per cent on new-build schools, and a massive 60 per cent on non-structural refurbishment, simply by being more efficient in the process.

In social care, Sandwell healthcare, a social enterprise, was able literally to halve the costs of delivering services previously run directly by the local council, with no loss of pay or other conditions for the staff, by among other things being able to reduce the number of sick days per employee from 32 to one. The challenge now is to ensure that this kind of saving is identified and delivered across the whole range of public spending.

On benefits, the Government have embarked on fundamental reforms. I welcome the plans to introduce a universal benefit and the plans for a citizens' pension, as they are major simplifications of the system and will mean that many people who currently lose out—in the case of the citizens' pension, principally women who stayed at home to have children—will for the first time get the benefits they deserve.

The second challenge we face is how to rebuild the economy in circumstances where the main drivers for growth are the emerging economies and not simply, or even primarily, the US and Europe.

Analogies are often drawn between the current crisis and the 1930s. They are largely misconceived because they ignore the fact that large parts of the world economy are booming and are likely to continue to grow strongly, whatever happens in Europe and the US. Emerging markets now account for a third of the world economy and two-thirds of its growth, which helps to explain why the world economy is now larger than before the financial crisis. All the evidence shows that companies are planning for further cross-border growth. A recent study by BDO showed that 95 per cent of ambitious mid-cap companies are confident about international growth for the year ahead. This is a far cry from the 1930s.

The high levels of growth in the BRICs and the appetite for international expansion by companies offer the UK huge opportunities, but ones that under the previous Administration were simply not adequately exploited. This is not simply or even primarily a matter for government, but government has a crucial part to play. The new Government appear to recognise this potential and have taken some positive steps towards realising it. The early visit of the Prime Minister to India was a good start. However, there is much more to be done. For a start, we must stop making things more difficult for those wanting to trade with or invest in the UK.

Over recent weeks, we have exhaustively discussed the immigration cap, but the current policy, which among other things denies multinational companies with large-scale operations here the opportunity to bring in the highly skilled staff they need to expand their activities, is highly damaging and must change soon.

We must also create the conditions that help companies to grow. We need, for example, a 21st-century infrastructure. In this area, the transport infrastructure announcements are highly welcome, but they deal with only part of the need. The establishment of the green investment bank is also a welcome development, but it needs to attract significantly more capital if it is really to bring our infrastructure up to speed. This should be possible as pension funds, other fund managers and sovereign wealth funds are all looking for long-term, secure vehicles in which to invest. Like the noble Lord, Lord Myners, I was pleased to read of my noble friend’s success in discussions with sovereign wealth funds in this area.

We also need a more highly skilled workforce. Here the Government’s announcements on the science budget, on funding part-time higher education students on the same basis as their full-time equivalents and on expanding funding for apprenticeships are welcome developments. However, the new system for the bulk of university students needs to include incentives for those of modest backgrounds to attend all our universities if we are to make the best use of the talent which we as a country possess. We also need to do more to reduce the level of functional illiteracy among school leavers and the adult population as a whole.

Regional development is clearly going to be crucial if we are to get a more balanced overall economy. The Government have introduced the regional growth fund but, with less than half the funding of the RDAs and an apparently weak bias towards spending outside London and the south-east, it will struggle to make much of an impact. Indeed, it was rather depressing to see that the initial local enterprise partnerships announced last week covered nearly all the south-east, including some counties already doing extremely well economically, but not large parts of the north. It is hoped that those gaps will be filled, but it is crucial that the limited money available goes to the parts of the economy with the largest amount of spare capacity.

In the CSR, the Government have set out a clear programme for this Parliament. If they meet their stated aims of making the delivery of our public services more effective and efficient and of creating the conditions for businesses to grow, they will deserve to succeed.

Taxation: Deficit Reduction

Lord Newby Excerpts

Thursday 28th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, I will cite the latest figure this week for quarterly growth in the economy. The naysayers said that growth in the last quarter would be 0.4 per cent, but it was 0.8 per cent, coming on top of 1.2 per cent in the previous quarter. With more than 300,000 new private sector jobs created in the second quarter, that is the way in which we will deal with the economic situation.

[Lord Newby]

My Lords, I am sure that the whole House will welcome the announcement this week of an agreement between the UK and Switzerland to tax adequately for the first time bank accounts held in Switzerland by UK citizens. Will the Government press for these accounts to be taxed at 50 per cent, equivalent to what these people would be paying on their income if they were living here and their accounts were here?