Public Expenditure: Reserve

Lord Peston Excerpts

Monday 9th May 2011 Lords Chamber

[Lord Sassoon]

No, it did not and I will not talk about hypothetical situations.

[Lord Peston]

It is difficult not be cynical about any discussion of this subject. I spent the morning—I probably wasted it—looking at the history of what Governments say about their attitudes to contingencies. In all cases, they say exactly what the Minister has said, except for one thing. When the chips are down and they have what they call a crisis, which they are never short of, they spend all the money that they want to spend.

[Lord Sassoon]

My Lords, I have been back and looked at the record and it is certainly the case that the previous Government went and topped up the reserve on at least 10 occasions. They increased borrowings when it looked as if expenditure was going to exceed their totals. This Government, when they set a total for managed expenditure, intend that it will not be exceeded.

Inflation

Lord Peston Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am grateful to my noble friend for recognising that the Chancellor’s letter was indeed couched in suitable terms. What my right honourable friend said on these points related specifically to commodity markets with our G20 partners—this is a particular focus of the G20 presidency, now with the French—to make sure that we have some global understanding of the drivers and an analysis of what might follow from that.

[Lord Peston]

My Lords—

[Lord Hamilton of Epsom]

My Lords—

[Noble Lords]

This side!

[Lord Peston]

My Lords, does the Minister agree that the problem is that the only instrument available to the MPC is the interest rate? The present rise in price levels is externally driven, which an increase in the interest rate can influence only by strengthening sterling. That would shift demand away from British markets to overseas markets and totally undermine the Government’s strategy. We know that the rules are that the Chancellor cannot say any of that, for obvious reasons, but is the Minister aware that three members of the MPC voted for a rise in interest rates, each one of whom is supposedly an economist? I do not know whether that is a source of enormous embarrassment to the Chancellor, but it certainly is to me.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Peston, as ever, for his insights and for pointing out that he did not expect the Chancellor to answer the question that was posed. Therefore, by extension, he would not expect me to do so. There are a number of very serious points here, the most important of which for the Government is that we need to stick to our fiscal policies as they were set out in the Budget and the spending plans last year. Only yesterday, the OECD endorsed the Government’s fiscal consolidation plans and structural reforms, pointing out that, in its view, this rebalancing was necessary for stronger growth. That is what we must stick to as a background against which the independent MPC is best able to make its interest rate decisions.

Monetary Policy Committee

Lord Peston Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Sassoon]

My Lords, I can confirm to my noble friend that sustainable and low interest rates are absolutely what businesses need to enable them to invest and to support the recovery. I will make a further point before the noble Lord, Lord Myners, jumps up. Last week he chided me for not giving the data on relative interest rates. However, the context then was not relevant. It is very relevant to the Question this morning. The latest data from yesterday on our performance on relative interest rates—the 10-year sovereign borrowing rate since the general election—show that the UK continues to outperform the US. We have narrowed our spreads against the 10-year bund by 39 basis points since the general election at a time when the French, for example, have widened their spread by 10 basis points. Therefore, on relative interest costs, which are a key indicator of whether the markets believe the Government are on their economic course, the news continues to be that we have the confidence of the markets.

[Lord Peston]

Will the noble Lord confirm that it is vital never to confuse the price level with the inflation rate? If the price level goes up as the result of a deliberate policy by the Government to raise VAT, there is no reason to interpret that as a rise in inflation. Therefore, it would be entirely idiotic for the MPC to raise interest rates at any time solely because the Government had raised VAT. Does the noble Lord agree?

[Lord Sassoon]

My Lords, again, I do not want to be drawn into either economic debate with the noble Lord, Lord Peston, or commentary on the governor. The governor indicates that the rise in VAT was one factor behind the rise in inflation, but I should point out that the rise in VAT to which he was referring was the one under the previous Government and not the present rise to 20 per cent. However, I take the noble Lord’s point about the nature of one-off rises such as that.

Deficit Reduction

Lord Peston Excerpts

Tuesday 18th January 2011 Lords Chamber

[Lord Sassoon]

The noble Lord, Lord Barnett, called it a “dastardly charge”; I am sure that I would not characterise it quite like that. The fact is that my right honourable friend the Chancellor is hiding nothing. It is simply that, as I have explained, under the measure that has been used since 1998 for measuring the deficit, privatisation sales—the sales of shares in companies—do not rank against the deficit, so my right honourable friend can have nothing up his sleeve.

However, it is important that the Government exercise stewardship over all their assets, fixed and otherwise, so that we have an ambitious programme to raise proceeds—they may not all count for deficit reduction—which will affect the debt position. That chimes in with the modernisation of government. Of course, among the most valuable assets the Government have are the shares in the banks which were nationalised. We want to ensure that the taxpayer gets a good return on those shares.

[Lord Peston]

This is a difficult Question, and I am pleased to hear the Minister say that he wants the taxpayer to get a good return on the relevant assets; in other words, they will not be sold at less than their value to the taxpayer. Can the Minister say where in the Government’s accounts the proceeds of these sales will appear? I have looked myself and I cannot find anywhere where I would put them, but then I am not an expert.

[Lord Sassoon]

My Lords, they will and do appear in tables in the Office for Budget Responsibility’s forecasts and records of sales. For example, the sales of fixed assets are dealt with in table 2.2, and the sales of financial assets when they come in are—

The noble Lord, Lord Peston, shakes his head, but I am looking at page 21 of the OBR’s Budget 2010 supplementary material which has tables. There are not yet financial sale numbers to go in for future years, but table 2.2 is there on page 21.

Bankruptcy

Lord Peston Excerpts

Tuesday 7th December 2010 Lords Chamber

[Lord Peston]

My Lords, as the Minister does not, under any circumstances, believe in answering questions put to him, can I ask him whether he has looked at the latest report of the Office for Budget Responsibility, whose forecasts for the next five years—which is how long this Government are insisting that they are going to stay—state that the balance of payments will be in deficit for every one of those five years? That means that our net assets will decline overseas by the amount we have to borrow to finance that deficit. What a nerve the Minister has to talk about bankruptcy in connection with the previous Government, when the balance of payments forecasts show that if anyone is making us head for bankruptcy—although I do not actually believe that we are—it is the present Government?

[Lord Sassoon]

My Lords, when the Government came into office, we had been put on negative credit watch by one of the main rating agencies, unprecedented for the UK, and were paying interest of £120 million a day. The first or second largest holder of bonds in the world had talked of the UK as a “must to avoid” and described the UK’s gilts as,

“resting on a bed of nitroglycerine”.

The Government have restored confidence in our public finances by setting out a clear plan to restore the budget to balance and that is what enables us to borrow what we need to borrow on the international markets on reasonable terms.

Budget Responsibility and National Audit Bill [HL]

Lord Peston Excerpts

Monday 6th December 2010 Grand Committee

[Lord Eatwell]

My Lords, my noble friend Lord Peston suggested to me that I should follow the introduction of this group of amendments by the noble Lord, Lord Higgins, by speaking now to Amendment 39. As noble Lords will be aware, this is simply an alternative means of achieving the objective that the noble Lord, Lord Higgins, seeks.

One of the most important aspects of any piece of serious economic analysis is that it should be capable of being replicated. If the OBR’s forecasts are to achieve the status that we on this side and, I presume, the Government hope for them, they must be capable of being replicated. This can be done only if full information is available at the time of publication.

The issue of replication is typically associated with the natural sciences, where replication of experiments is a fundamental requirement of any empirical scientific statement. However, the Minister may be unaware that it is now standard practice for any article published in a leading applied economics journal to provide the electronic address at which the data and other relevant information required to replicate the results in the article are available. In these days of large datasets and complex econometric models, data accessibility is critical to effective peer review—even effective assessment of whether any analysis or forecast should be taken seriously.

Amendment 39, in my name and the names of my noble friends Lord Davies and Lord Myners, will ensure that effective appraisal of OBR forecasts and other economic analyses are possible. As is made clear in the preface to the OBR report that we discussed last week, compiling the fiscal forecast requires detailed information from many government departments. That is why our amendment refers not only to data and methods but to costings, which the OBR are required by the charter to confirm. In other words, all the raw materials on the basis of which judgments have been made and forecasts have been constructed should be available for objective assessments of those forecasts to be made. This will not involve any significant extra burden on the staff of the OBR, since the data and costings must already have been assembled in electronic form for the OBR to do its work.

The noble Lord, Lord Higgins, raised an interesting point about the model that might be used by the OBR. We have been told that the Treasury will retain its own forecasting unit. We would like to know whether the forecasting model to be used by this unit is to be the same as the model used by the OBR, in which case any differences in forecasts would simply be matters of judgment. That would surely be a ridiculous duplication. It would be much better to develop alternative perspectives, since they can often throw fresh light on difficult problems.

In supporting the general line that the noble Lord, Lord Higgins, has taken, I simply add that we want to be in a position where serious researchers can replicate the approach and findings of the OBR in order to be able to evaluate them effectively.

[Lord Peston]

My Lords, noble Lords will be aware from my remarks last time in Committee that I would not have set up an OBR. I regard it as a waste of public money, to be perfectly honest, but I entirely accept that we are going to have an OBR, since the Government have a majority in the other place and in practice seem to have a majority in your Lordships’ House. Therefore, I entirely agree with my noble friend Lord Eatwell that, if we are going to have such a body, we might as well make it a better one, rather than a worse one. Therefore, we have a duty to scrutinise the proposed legislation and come up with a variety of suggestions, in the hope of persuading the Minister that we could make a better fist of it than the Government have done so far. There I echo the remarks of my noble friend.

On this group of amendments, I repeat something that I said last week. The OBR’s November economic and fiscal outlook report produced a series of forecasts that are not based on any recognisable or explicitly stated economic theory. This is forecasting without theory, which is slightly different from forecasting without a model, although the two are connected.

I have found it difficult to discover from the economic and fiscal outlook report what assumptions the OBR has made—and, presumably, will continue to make—about the way in which the economy works. The central issue as far as serious economics is concerned is whether it is assuming that the economy is a self-adjusting mechanism that will come to a full employment equilibrium—the kind of assumption that what I regard as obsolete economics used to make—or whether it is taking for granted, first, that the economy will not come to an equilibrium at all or, secondly, that there are multi-equilibriums and it does not know where the economy is going to go. Whatever the case, many believe that, wherever it settles, it is most unlikely to settle at anywhere recognisable as a place of full employment.

On a related matter about the facts and how seriously we should take the OBR forecasts as they are now, we have available, as the noble Lord, Lord Higgins, pointed out, the immensely helpful survey published by the Treasury of all the independent forecasts, to which I shall refer further on Report. I have analysed the independent forecasts statistically and it is interesting to note that, given the averages, standard deviations and the other statistical criteria, the forecasts of the OBR and the independent forecasters for 2010 and 2011 are much in step. However, it is extraordinarily interesting to note that the OBR forecast for 2012—that GDP will grow at 2.6 per cent per annum and will continue to grow at that kind of rate—is remarkably optimistic compared with the forecasts of the independent forecasters; it is statistically significantly different. The OBR has not discussed this matter, nor have outside commentators, but your Lordships—we shall return to this issue on Report—have to ask how the OBR has come up with this optimistic view.

There was a time when the Conservative Party believed in the free market—those days seem long gone—and would have taken it for granted that, as the independent forecasters overwhelmingly are in the business of making money from accurate forecasting, they have a tremendous incentive to forecast accurately. Therefore, if one had a choice, one’s normal inclination would be to say, “If you believe in the free market, you will choose the free market forecasts as opposed to the OBR’s forecasts”. We shall return later to the significant issue of the optimistic OBR forecast for 2012 against the rather more pessimistic forecasts of the independent forecasters.

There may be two good explanations for the difference: first, many of the independent forecasters do not look that far ahead and we may have a biased sample of what we get from the Treasury; and, secondly, the OBR may have more information—for example, it may be better advised on government policy—than the independent forecasters. I am not saying that necessarily the OBR is mistaken; I am saying that the difference is, from any analytical and statistical point of view, noteworthy.

[Lord Myners]

My Lords, I, too, speak in favour of the amendment tabled by the noble Lord, Lord Higgins. Unlike my noble friend Lord Peston, I am in favour of the OBR. However, I share with my noble friend some anxieties about whether we need another set of economic forecasts. We should warrant another set of forecasts, in particular if the Treasury is going to produce its own, only if those from the OBR prove to be better and more accurate than those produced by commercial forecasters and other bodies. Therefore, it is important that we are able to analyse the forecasts made by the OBR, in order to understand the logic behind them and the assumptions that have been employed. That can best be done—and the veracity, standing and confidence that we wish to have in the OBR supported—if the model used by the OBR is freely available for analysis by peers, commentators and parliamentarians.

I have one question for the Minister. He has advised us that HMT will continue to produce its own economic forecasts. However, he has criticised HMT’s forecasts on the grounds of their accuracy and the spin placed on them by politicians. If he believes that HMT was leant on by politicians, it would be interesting to hear some examples, because during my 18 months in government I saw no evidence of Treasury forecasts underlying government policy being influenced in any way by politicians. The Minister has also criticised the amount of content of HMT’s published forecasts, including the fact that HMT did not publish forecasts for unemployment. Will he confirm that in future HMT will publish a full and comprehensive set of its own economic forecasts, which will in particular include forecasts for employment and unemployment?

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[Lord Sassoon]

My Lords, I, too, am a bit puzzled as to why we are discussing only half the linked story, but my noble friend has it right when she talks about the defective nature of this amendment in taking out the requirement for an assessment of the accuracy of fiscal and economic forecasts. No doubt we shall come to the question of whether there is any other way of doing it later, when I might not be quite so keen on what she has to say. However, I certainly agree with her that it would be inappropriate to remove the requirement for an assessment of the accuracy of the forecasts. It is an important requirement that there should be such an assessment—

[Lord Peston]

May I interrupt the noble Lord? I am totally puzzled now. The noble Lord uses the word “requirement”. The people who comprise the OBR will not be idiots. They are going to be experts and qualified economists. Quite independent of what is in this Bill, if the forecasting is not working well, they will ask themselves why they got it wrong. There is no need for a requirement here unless you assume that a bunch of morons is going to be appointed to the OBR. If you get a forecast wrong, you immediately ask why you got it wrong. Why is there a need for a requirement to do something that would be a normal way of working?

[Baroness Noakes]

I suggest to the noble Lord, Lord Peston, that it is not so much the requirement to do the assessment as the requirement to publish it that is important.

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[Lord Sassoon]

I am grateful to my noble friend for delivering my script for me. Perhaps I should declare my interest as a fellow of the Institute of Chartered Accountants in England and Wales. There is certainly a technical use of the word “audit” that we chartered accountants and other accountants are used to using. As my noble friend Lady Noakes has explained, my right honourable friend was using a more general use of the term. The Chancellor used the phrase in the very specific context of,

“audited all the annually managed expenditure savings”.—[Official Report, Commons, 20/10/10; col. 949.]

To be clear, there is no question of the OBR doing an audit in the sense used by, say, the National Audit Office. In the context in which my right honourable friend used the word “audit”, it is completely clear that he was talking about scrutiny of those particular savings, as set out in the terms of reference given to the OBR when it scrutinised the Government’s policy costings. If the noble Lord, Lord Barnett, wants clarity on the meaning of the word, the terms of reference are clear.

In answer to the questions about the number of contacts between the OBR and the Treasury, that information is now published on its website. Between 4 October and 29 November 2010, there are seven recorded contacts: four e-mails, two meetings and one transmission of a hard-copy document. As I say, all those details are on the OBR’s website for people to look at.

The clarity over the OBR’s role is provided for through the provisions in the Bill and the charter. There is no intention for the OBR to do an audit in the technical sense of the word. I hope that it has been useful to have had this short discussion to clarify that that is indeed the situation and, having agreed that, I do not think that we need to clutter up the Bill in the way that the amendment proposes. On the basis that it is not strictly necessary, I ask the noble Lord if he might withdraw it.

[Lord Peston]

My Lords, when it suits him, the noble Lord is keen on the casual use of language. Can I take it that “audit” does not now mean audit? Does it mean to scrutinise? Can we see the documentation corresponding to that scrutiny? Is it available?

[Lord Sassoon]

Indeed, my Lords, as I said, the form of the scrutiny is set out in the terms of reference given to the Office for Budget Responsibility for its review of the spending review and were published as part of the spending review documentation on the Treasury website. If it would help the noble Lord, I can read out the key paragraph of the terms of reference for the Office for Budget Responsibility. Paragraph 4, entitled “Economic and fiscal forecasts”, states:

“The Spending Review will allocate spending between departmental expenditure and annually managed expenditure within the envelope set at the June Budget. As part of the Spending Review, and consistent with the approach taken in the June Budget, the OBR will provide independent scrutiny of the Government’s estimated costing of annually managed expenditure (AME) policies”.

[Lord Peston]

I am sorry, but I would really like my question to be answered. I do not want to know the form; I want to see the actual scrutiny. Nothing in the big document includes that scrutiny. The Chancellor claimed, using the Minister’s words, that the OBR had scrutinised all these expenditure savings. I should like to see the document which says, “We looked at this and this is our analysis”. I want to see the scrutiny; I do not want to know how the office did it. I want to know that it was actually done. I have not the faintest idea of where to look for this scrutiny, but it is not in the big document—which is what I call it because I cannot remember its name. Where is it?

[Lord Sassoon]

My Lords, the scrutiny is one of the things that underpin what the noble Lord calls “the big document”. If the OBR had any questions about the AME numbers, it would litter its document with commentary on it. However, it is quite clear from the terms of reference given to the office by the Treasury that it was required to and did scrutinise the AME numbers and was free to make any comments it felt like making on them.

[Lord Peston]

I would like to see where they are. I know the difference between form and substance, and I would like to see the substance.

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[Lord Barnett]

I must tell the noble Lord that I may not be doing my job properly, but I do not spend my life going through Treasury or OBR websites. Perhaps I should; it might make me better informed. I would not go “over the top”, as the noble Baroness described me. I doubt it. It might make me even more so. The noble Lord, Lord Sassoon, has now told us information that I confess I had not read on the website. It may be that every other Member of the Committee has read it on the website.

[Lord Peston]

I did not.

[Lord Barnett]

I am sure that the noble Baroness, Lady Noakes, read the website carefully. She did not quote it to me, but I now have the figures, which are a bit disturbing. I will read them with greater care later. Once again, Robert Chote is doing the job that the OBR is being set up to do—to tell the world how good the Treasury is. I had a little experience at the Treasury for five years. Officials are excellent, in my experience. I can see them over there, but they are not nodding, because they would not do that. The noble Lord, Lord Sassoon, can nod on their behalf. He is quite right; they are very good. I always found them to be excellent. However, that does not make the Chancellor right in saying all the things he says, either in introducing the comprehensive spending review or at any other time. I confess not only to being not over the top but to being too moderate in my remarks. I am very concerned.

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Moved by

[Lord Peston]

29: Clause 5, page 2, line 35, at end insert “; and it may, in particular, take evidence from expert witnesses which it must publish”

[Lord Peston]

My Lords, of course I tabled Amendment 29 before I had heard the Minister’s replies to many other amendments. What he emphasised most was the independence of the OBR and its ability to make up its own mind what it wants to do. I assume therefore that when I say it should be able to do this, he will get up and say that it can if it wants to. I do not think that I need to detain the Committee much longer, but I would like to hear the Minister confirm that the OBR can do what it wants. I beg to move.

[Lord Sassoon]

I shall try to be almost as brief. I agree absolutely that the OBR should have access to external expertise and that there should be appropriate transparency around this. The design of the OBR will allow it to have access to external expertise as it sees fit, and indeed the office held a range of discussions prior to producing the recent forecast. The office may convene advisory panels if it thinks that that sort of external perspective would be of help.

My only difficulty with the amendment is that the office would be required to publish the evidence taken from expert witnesses. I think that it should be for the OBR to determine what it thinks it is appropriate to publish. That is because we do not want to constrain freedom of exchange. The office has a general statutory duty to act transparently, within which context obviously it will think carefully about what it should publish. Further, although I hope that it will not be necessary, there is of course the backstop of the Freedom of Information Act to which the OBR is subject. I think we should leave it to the discretion of the OBR to choose to publish evidence from such experts as it consults.

I hope that my response has given the noble Lord, Lord Peston, the confirmation that he was seeking, and that he will feel able to withdraw his amendment.

[Lord Peston]

I thank the Minister very much for that answer. I, too, am making the assumption that the OBR will read our debates and therefore know what we think. Subject to that, I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

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[Lord Higgins]

I should perhaps have said in my opening remarks that I had, in effect, had second thoughts. It may be that my amendment simply leaves open the question, but we really want to clear it up.

[Lord Peston]

My Lords, I speak to Amendment 32, which is in my name and that of my noble friend Lord Barnett. When I first saw subsection (3), I must say that I was appalled, in particular by the words “may not consider”. This body is supposed to be independent and, unless we are to get a new form of thought police brought in here, can presumably consider anything that it likes. That does not mean that it should be involved in a report on itself. However, to tell a group—at the moment, a group of three expert economists—that what it can think about is limited by an Act of Parliament is absolutely absurd. I draw the Committee’s attention to what “may not consider” means; that you cannot even think or talk about something and that it has nothing to do with you. This is incompatible with the group’s independence and professionalism. I wonder what serious, self-respecting economist would wish to work under those circumstances. I would not, under any circumstances, be willing to work and be told that. I can remember the sad old days in the Treasury when everybody was told that under no circumstances were we ever to discuss or use the word “devaluation”. It did not have any effect: we just did it privately or secretly, and so on. That was the worst example of this that I can remember.

I was appalled by this subsection and I thought that taking out “not” was the best way of dealing with it. However, the method proposed by the noble Lord, Lord Higgins, is better still: take out the whole subsection. It may well be that we could put in another clause of a more positive nature. It is perfectly obvious that the OBR’s job is to consider the whole issue in the context of government policy, because, as the Minister has emphasised—although I slightly disagree with his logic—the OBR is not a decision-making body, it is just a forecasting body. I do not entirely accept that distinction, as noble Lords are aware, but I can at least see the Minister’s position. I accept what my noble friend Lord Eatwell and others have said; that forecasting is the OBR’s main role. There should not be a clause in what will eventually be a statute telling the OBR what it may consider, unless the meaning of “consider” in the English language has changed. My general view is that the approach of the noble Lord, Lord Higgins, was much better than mine or that of the noble Lord, Lord Barnett. We should remove subsection (3).

[Lord Newby]

We had a long debate on this issue at our previous meeting and I am not going to rehearse all the arguments. I suggested, out of frustration, that we were spending too long on this form of words, which, in slightly more words, actually had the same purpose as Amendment 31. We did not spend any time looking at it, because we were considering the amendments in order. However, Amendment 31 is clear and achieves the purpose that we sought to achieve in our debate last time, which was that the OBR, in making its assessments, obviously should take account of government economic and other policies. Equally, in the context of the second part of the subsection, the OBR’s role should not be what the noble Lord, Lord Peston, thinks it would be. It should not be able to stray and look at anyone’s alternative policies—that way madness lies. The OBR must have a straightforward remit to look at what the Government are proposing and work on the assumptions that the Government are making in their policies.

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[Lord Sassoon]

My Lords, perhaps I might go back to confirming what we are seeking to do and not to do in the Bill. We have discussed all these related issues at some length. The noble Lord, Lord Burns, has got it pretty much spot on in terms of what we are trying to achieve, but for the avoidance of doubt I shall restate it.

With regard to the core forecasting remit, the intention is that the OBR should consider government policies and not other policies. To take the point made the other day by the noble Lord, Lord Eatwell, we want to ensure that the OBR can take account of external shocks, for example, so in technical drafting terms his amendment would not quite work as it focuses narrowly on policy. We agree, anyway, that it is the Government’s policies and not other policies that need to be considered. We must not leave out the fact that, in doing the forecasts, the OBR can look at scenarios and at other issues.

With regard to the noble Lord’s specific question about an EU-related policy, either it has been adopted by the UK Government and is therefore included in government policies or it is not. Either the EU policy example has been adopted as policy in the UK or it has not, therefore it falls accordingly. That would get picked up, so that much is clear. Equally, it is the clear intention that the OBR should not be drawn into costing alternative policies, whether they are opposition policies or just other scenarios or partial packages of policies. That is what is intended by the construct in the Bill, and part of it is clarified by paragraph 4.12 in the draft charter.

Even though I am convinced that the Bill achieves what most, if not all, of us are trying to achieve in these various respects, I take to heart the fact that we have spent a lot of time going around the interaction of Clauses 4 and 5(3) and, to an extent, the relationship with Clause 1. Notwithstanding the fact that I think that the Bill works as drafted, I am listening carefully to all the points being made. I will go away and see whether anything can be done to make it even clearer in the Bill what the intentions are. However, it is difficult drafting. We should certainly not take out Clause 5(3) in its entirety, because, as the noble Lord, Lord Burns, pointed out, we want to make sure not only that the forecasts are concentrated on the right thing but that the OBR is not drawn into other political controversies.

[Lord Peston]

Can the noble Lord give one clarification on that? We all agree that, if we are going to have an OBR, we must keep it out of political controversy, but do the “government policies” to which he referred include the behaviour of the Monetary Policy Committee of the Bank of England?

[Lord Sassoon]

When I talk about government policies, I mean government policies. What assumptions the OBR makes about monetary conditions, interest rates and so on touches on an issue about which my noble friend Lord Higgins asked earlier. I have undertaken to relay his request to see whether Mr Chote wants to say any more about how the OBR considers monetary policy issues. Certainly, while I said that the OBR should consider government policies, there are lots of other things that it needs to consider. It is clear that it is making assumptions about interest rates and so on that are taken broadly from what the Bank of England lays out.

[Lord Peston]

Since we are putting this on the statute book, is it the case that the OBR would not be offending the law, as it will eventually be, by paying great attention to what the Monetary Policy Committee of the Bank of England was up to? I merely want some reassurance on that. There is no way in which it can do any forecasting unless it does that.

[Lord Sassoon]

I assume that in all normal circumstances it will look intently at the forecasts of the MPC about future inflation and interest rate prospects.

Budget Responsibility and National Audit Bill [HL]

Lord Peston Excerpts

Wednesday 1st December 2010 Grand Committee

Moved by

[Lord Peston]

9: Schedule 1, page 11, line 13, at end insert “; and in making such nominations the Office will set out the role of the 2 or more members, including why they are needed.”

[Lord Peston]

Amendment 9 is grouped with Amendment 15, which my noble friend Lord Eatwell will speak to. I have discovered that the more work one does jointly, the more thoughts one has. Therefore, one or two things emerge from this amendment that had not occurred to me when I tabled it. I will mention what they are, but that does not necessarily mean that we should debate them today: we might save them for Report.

The amendment covers the role of the two or more other members. They are referred to in the Notes as non-experts. I had not thought through the implication, because the word is not used in the Bill, that the OBR people are the experts. At some point I shall try to find a way by which we can discuss the distinction between expert and non-expert. I assure the Minister that this is a probing amendment for elucidation. I am asking what the point is of having these people. Given that we have experts, what do they contribute? They cost money—I assume that they expect to be paid—and they will have to be serviced with briefings of all sorts. The point of the amendment is to ask generally why we need this class of member; and, secondly, if this is what the Bill intends and if we are to have them, to ask the OBR, which will want to appoint them: “Can you tell us why you need them in this broad category, and why you need these specific people?”. I was intrigued by the Notes saying explicitly that these people will not be experts.

My other point is that so far, the only thing that we have any practical experience of, given the operation of the OBR, is that these people are not experts in the sense that they are not economists. I assure the Committee that there are other experts in the world. One or two of my colleagues, particularly in the United States, believe that economics will develop into a universal science that will cover everything in the field of human knowledge. I do not hold that view. It seems to me that although the experts so far are economists, I can think of other areas of expertise that would class people as experts for the purposes of the Bill. I do not expect the Minister to talk about that today, but I will raise it on Report. Statisticians and businessmen have wide experience and could be classed as experts in this context. The point of this probing amendment is to seek enlightenment. I beg to move.

[Lord Eatwell]

My Lords, I want to speak to Amendment 15 in this group, which is tabled in my name and that of my noble friends Lord Davies and Lord Myners. The amendment seeks to provide a specific and important role for the non-expert members who, in the Explanatory Notes, are defined as non-executives. The role of the non-executives is very important indeed because, as we have already identified, the OBR is a strange beast. It is independent in an important way, or at least we hope it is, and yet it is an essential ingredient of policy-making within a particular department, mainly the Treasury. So it is not really a non-departmental public body as we know many independent bodies because it is very much part of the Treasury, and yet it is also very much not part of it. It is therefore important that we bolster the “not” side of that equation to ensure that not only is there the reality of independence in a way that I know the Government are seeking, but also the appearance of independence, which will be equally important, especially in more tempestuous political and economic times.

Amendment 15 seeks to clarify the role of the non-executives in a particular way. What is striking at the moment is that the non-executives have no role whatever except that of being involved in audit activity and the production of the annual report; otherwise, they simply make the tea for the experts. We want to give the non-executives a particular role, that of bolstering and supporting the independence side, let us call it, of the OBR. It will be done by requiring the office to include in its annual report an assessment of how the OBR and the Treasury have adhered to the terms of the OBR’s independence as set out in Clauses 5 and 6(2).

Noble Lords will recall that Clause 5 makes the particular point that not only does the OBR have “complete discretion” but, as set out in subsection (2):

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

One of the oddities of the draft charter is that it seeks to define the terms of Clause 5(2) which are perfectly well defined in the noble Lord, Lord Sassoon’s, favourite reference book, the Oxford English Dictionary. I do not see why we need any further definition, but we will come to that in a moment. The non-executives can comment on these provisions, but more especially they can comment on the provisions of Clause 6(2), which is the really crucial piece of independence in the Bill—the independence of method and of forecasting approach. That is because, as we discussed on Monday, the Treasury is to retain its own forecasting unit and the non-executives will have the responsibility of assessing whether the mutual influence between the two forecasting organisations compromises the OBR’s independence.

It is important that the Government should realise that forecasting organisations influence each other to a considerable degree in respect of introducing new and different ideas, concepts, judgments and methodologies. Moreover, first-class forecasting units interact with one another. That is absolutely inevitable at any level of serious intellectual endeavour. For example, in economic forecasting, the very method used can have a significant influence on outcome, and unwarranted influence on the outcome can be exerted as much by a debate over method as over judgment.

The role of the non-execs is simply to stand there as defenders of the independent side of the OBR, and we could give them the responsibility of reporting on that independence in their annual report. They would then have a specific, valuable and important role.

I admit that Amendment 9, tabled by my noble friend, is cast in much more general terms, but I think that it is seeking to achieve the same ends. It is seeking to define a role for the non-executives. I suggest that the statutory role that we are suggesting—as guardians of the independence of the OBR—will be of enormous value to the Government, to Governments in future and to the organisation itself.

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[Lord Peston]

My Lords, will the Minister clarify one or two of his remarks? I got a bit lost. I think I am right that he is now saying that the real distinction is exec versus non-exec, not expert versus non-expert, so we have moved on from the Explanatory Notes on those clauses to something different. Do I therefore understand that the non-execs could include people who would be regarded as experts?

My second question, and I blame myself for this as I did not emphasise it in my opening remarks, concerns the rubric in the Bill, “two or more”. I meant to ask: what is the point of “or more”? Two seems a lot. Why have the Government not been able to make up their mind what they think the right number is? I was very puzzled by that. I would have thought that two, full stop, would be enough. Certainly, if I were doing this, I would say, “If we’re going to have to have these people, a couple of them are fine”, but I do not see where the “or more” comes in, unless we go along with my noble friend Lord Eatwell that the two that we have turn out not to be able to make tea and we need a third one for that purpose.

[Lord Sassoon]

My Lords, in answer to the first question, to be clear again, it is certainly the case that there is a group which is executive and expert and then there is a second group, described at the moment in the Bill as “non-expert”, which is also non-executive. That second group could be experts, there is nothing to rule that out, but the point is that they do not have to be experts; they should, however, be sufficiently independently minded, supportive and challenging of the executive expert members.

We have put in “two or more” because at the moment we think that the remit of the OBR and the construct should be perfectly sufficient and workable for robust government arrangements. That is the minimum number. To have one non-exec would put that individual in an impossible position; two gets you to the minimum. If the OBR’s remit were somehow to develop in an unanticipated way, it might be appropriate to modestly expand the number of non-exec non-experts, but that is not the intention at the moment.

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[Lord Eatwell]

As I have said, I understand that; but when you are in the executive position, as the very distinguished people you have been lucky enough to attract to run the OBR are, it is very easy, because you have to get the report out and do things, to be so immersed in the incredible pressures that you slip across boundaries. If non-execs are there, like a non-executive chairman with a chief executive, they could help with guidance and prevent that slip happening. If we give the non-execs this particular role, it will not only bolster the appearance of independence of the OBR—which is valuable in itself—but provide an important check in reality. Including that duty in the Bill would be so serious that I do not think that serious people would treat it in a formulaic manner.

[Lord Peston]

My Lords, I thank the Minister for his clarifications, particularly in relation to the application of the exec versus non-exec issue. My noble friend Lord Eatwell has made a powerful case and I am glad that the Minister will at least reflect on how independence will work. Even though one felt very frustrated on Monday by the Minister’s refusal to give a much bigger role to the House of Lords, I can assure him that as long as I am alive, I and my noble friend Lord Barnett will find many a way of making sure that the OBR is subject to the kind of criticism that will ensure that, whatever else it is, it is definitely independent.

Having said that, I would like to come back to the question of expertise, but that can wait until Report. I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

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[Lord Sassoon]

My Lords, I am quite puzzled by this amendment because we are moving into unusual territory. We believe it absolutely right for the Treasury Committee to have a veto over the role of the chairman, but it is almost unprecedented for Parliament or parliamentary committees to have such roles at all, let alone over non-executive members. One of very few other appointments that is subject to a parliamentary veto of the sort provided for in this Bill is that of the Comptroller and Auditor-General.

In terms of the non-executives, I do not share the analysis of the noble Lord, Lord Eatwell, in terms of expertise. I shall come back to the other constitutionally substantive point, which is that we are not talking about experts in this area in any sense but about those who will bring independence of mind and who will challenge and support. That is potentially a much wider field of candidates. So I think that such appointments would rest on the relatively narrow point about what the Treasury could bring to bear, and actually I do not think that it would have anything special to bring to this. The wider point to be made here is that we would be moving into new and extraordinarily different territory. To take one broadly similar example, the non-executive members of the board of the UK Statistics Authority are appointed by the Minister for the Cabinet Office after consulting with the chair of the UK Statistics Authority. So we are following a perfectly respectable precedent.

In answer to the question of why the names that are being considered for the non-expert, non-executive role should be nominated by the OBR, again we want to strike a balance between appointment by the responsible Minister, who is the Chancellor, while not leaving it entirely to the Chancellor and the Treasury to come up with names. So again there is a perfectly well precedented route by which the authority concerned has a role in identifying candidates. That would include the Debt Management Office, the Crown Estate Office, the museums, the Natural Environment Research Council—I could go on.

Our suggestion in the Bill for how this should work is well-worn territory; there is nothing so different about the role of these non-execs. We have already had some questions about how substantive the role is, but there is nothing that takes the roles of these non-execs into remotely different territory from the role of non-execs in a lot of other well functioning bodies in the broader public sector, and we have broadly followed the appointment processes in those other areas. I am genuinely puzzled by this amendment and do not believe that it would add anything to the strength of the OBR governance arrangements.

[Lord Peston]

Perhaps I may indicate one thought that has occurred to me, which the Minister might like to reflect on. It follows on from what my noble friend Lord Eatwell said: namely, that there is an enormous benefit to be gained if these people have been scrutinised. I do not believe that in practice it would occur very often, if at all, that the names brought forward were rejected, but a committee—which, one hopes, did not operate politically, such as the Treasury Select Committee; certainly the Economic Affairs of your Lordships’ House has never done so—might say, “We approve of these people; they’re just the people we need to help safeguard the independence”, which my noble friend Lord Eatwell has emphasised in this context and before. It is worth reflecting on whether that would be helpful in a body that is very different from any body that I can think of that has been set up in my time to consider economic policy-making.

There is an old adage, “Never do anything for the first time”, but that is what this body is doing, whether we think that that is good or bad. I would have thought that the Minister might like to reflect at least a little on the point that there would be positive benefits from going down the path that my noble friend suggests.

[Lord Desai]

I am sorry, my Lords, I did not speak in the Second Reading debate or on Monday. The point here is about trust. The Government have set up an institution that in its early days suffered from a bit of a problem of trust. I think that that was an accident, not the fault of the OBR itself. Whatever the Government can do to establish trust in the body would help them enormously. As my noble friend Lord Peston said, this is an innovation, a very good one, and perhaps it would strengthen it to do something, as my noble friend Lord Eatwell has suggested, to say that this is not like any other public sector body but is vital to the conduct of economic policy by the Government and to the perception of that policy. If the Minister can do something to assuage the trust deficit that we have here, it would be helpful.

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[Lord Myners]

I agree with those comments. However, the duties described in Clause 5(2) are subject to guidance given under Clause 6(1)(b), which slightly diminishes the confidence and reliance we can place on Clause 5(2).

I support the intention of this clause, but cannot bring myself to support the wording of the amendment. The majority of the staff of the OBR, certainly until quite recently, were former Treasury officials, and the majority are doing work that is very similar to the work that they were doing before the establishment of the interim OBR—work that they are now allowed to appear to criticise through the OBR. They are still in the Treasury building, they are still going to the excellent Treasury canteen for their subsidised lunches and they are still entitled to belong to the Treasury choir and the Treasury glee club. They have not left the Treasury. What we are seeking to achieve is appropriate distancing—but not at the cost of denying the OBR the best people to do the job. It is not unreasonable to assume that currently at least some of them will be working in the Treasury.

The difficulty that I have with the drafting of the amendment is the reference to “transferred temporarily”. “Temporarily” assumes some knowledge of the future. I see a situation in which somebody may go from the Treasury to the OBR and later return to the Treasury without that necessarily having been planned. There must be clear severance in employment terms: it must be quite clear that staff have left the Treasury and are now employed by the OBR. The independent, non-executive directors should keep a particularly close focus on where people are recruited from and where they go afterwards, in order to make sure that the effectiveness and credibility of the body is not diminished by a greater flow between the Treasury and the OBR than common sense might justify. However, I cannot bring myself to support the amendment as it is drafted.

[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.

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[Lord Turnbull]

My Lords, I am amazed at the sheer unrealism of the proposition of the noble Lord, Lord Peston. If this is enacted, there will be a major crisis in the organisation. Around 20 people will have to take a decision whether to resign from the Treasury or quit the OBR and go back to the Treasury. That is something we could absolutely do without. The initial staff in large majority are secondees. We have not complained about their work. We did not say that the report produced last week was ineffective or that we did not trust it because the staff are seconded. The noble Lord is imposing something that will be damaging to the credibility of the organisation and will make it much more difficult to attract people of the quality it needs. As I have said, a major problem will be created immediately if such a proposition is enacted.

[Lord Peston]

I did not create this problem. I did not set this body up. Unlike all other noble Lords present, I do not happen to be much in favour of it, but that is another matter. The fact is that our duty in this House, when a piece of legislation is going through, is to make it better. That is our role. So this is not my responsibility, but my point is that if we are going to have such a body, whose essence is its independence, if it turns out that the staff are secondees, that undermines its independence. It will not be independent any more.

[Lord Burns]

I support my noble friend Lord Turnbull and the noble Baroness, Lady Noakes. This amendment is totally unrealistic. To imagine that one should bar secondees from this kind of activity is extraordinary. There can be no real career structure within the OBR. There are specific sets of jobs and there will be little potential for advancement. It is bound to provide activities that people will take on for a certain period, after which they will move on to do something else. Inevitably, they will wish to hold on to their employment in a department which actually offers them the possibility of a career structure.

I think that the noble Lord hugely underestimates the independent-mindedness of many civil servants. During my time in the Treasury, and I am sure subsequent to that, we had many secondees from other departments who would work in our expenditure divisions. They would work effectively in support of the Treasury by running, very often, the expenditure policies relating to the departments from which they had been seconded. I had no difficulty with this. Indeed, when I first joined the Treasury, my noble friend Lord Kerr was on secondment from the Foreign Office to the Treasury in order to carry out the expenditure work of the MoD. These are everyday, bread-and-butter activities for civil servants, and I am confident that they can work very effectively.

Clearly there would be a problem if the executive members of the OBR were on secondment from the Treasury, but I assume that that is not what is in mind and that the mechanisms which have been put in place in terms of their appointments will safeguard against that. However, we must be realistic about these arrangements. As long as the senior people in the OBR are appointed under the correct processes so that they are independent, it should be for them to recruit the people who they think can carry out the tasks most effectively. To surround that with lots of restrictions is not only unrealistic but, as my noble friend Lord Turnbull said, very damaging.

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[Lord Peston]

Perhaps I may interrupt the noble Lord. Do his numbers include secretaries, computer programmers and all the ancillary staff, or is he talking about frontline staff? I do not see how the OBR has managed to do any work at all if it does not have lots of ancillary staff. Am I wrong in that?

[Lord Sassoon]

No, the noble Lord is right. The figure is the total number of staff.

[Lord Peston]

That figure of 13 includes secretaries, PAs and computer programmers?

[Lord Sassoon]

I cannot give a breakdown of exactly what they all do, although it would be possible to do so. The office no doubt buys in all sorts of services, but that is the total number of staff. As I said, I believe that Robert Chote intends that when the office is totally established there will be about 20 full-time staff. That is the number that he believes will be needed.

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[Lord Peston]

My Lords, there are three amendments in the group, but I want first to say a brief word about the amendment spoken to by my noble friend Lord Barnett. I am intrigued by what is set out in the Bill: the setting up of a committee or sub-committee that may consist of or include persons who are neither members of the office nor members of the staff. I asked myself what this could possibly be about. The Minister decided that he did not like that by quoting the most trivial example he could have dreamed up, and went on to say that they might have set up a committee to deal with personnel matters and that that should not be known. I do not see why that should not be known; transparency means transparency, it does not mean “transparency but”. I want to know what serious argument the Minister could possibly put forward to explain why the office is not obliged to let us know if it sets up a committee. I had assumed that we were talking about a committee of experts on optimal forecasting methods and that sort of thing. We need a more serious response from the Minister.

A fortiori, the amendment tabled by my noble friend Lord Myners requires a serious reply. If you believe in transparency, would there be any circumstances why the minutes of the Budget Responsibility Committee should not only be published but be made available to the public at the same time as they are made available to the members of the committee? Both of those are matters of significance.

I come now to the third amendment in the group, just to say that it is also important. My noble friend Lord Barnett will enlarge on it in a moment, but again I hope that we are given a serious answer, rather than a trivial example to explain why the Minister does not like it.

[Lord Barnett]

I shall say a word about Amendment 34. It seeks to provide that:

“The Office will place in the public domain a record of all meetings with the Chancellor … and other ministers”.

When I tabled a Question for Written Answer on this matter for the noble Lord, Lord Sassoon, he asked Robert Chote to answer it. Mr Chote has duly written to me and I shall quote from it:

“We will be publishing a list of contacts between the OBR and ministers, special advisers and their private offices shortly after each autumn and Budget forecast, beginning with our forthcoming forecast on November 29th”.

I do not know when the list is going to be published and I have not seen it, but it is clear that regular formal or informal meetings with the Chancellor and other Ministers are a very important matter for an independent forecaster, one that is not available to our other 50-odd forecasters. So I hope we will have an answer to this very soon. That is the whole purpose of Amendment 34.

I shall not add to my remarks because I am trying hard to curtail my contributions so that we get to the target figure of amendments that the Government want to see dealt with. But far be it from me to prevent Members of the Committee speaking.

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[Baroness Noakes]

Is this a letter that only the noble Lord has received from my noble friend the Minister?

[Lord Peston]

We have all been given one. They are over there.

[Lord Higgins]

Has my noble friend now got a copy?

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[Lord Peston]

My Lords, the noble Lord, Lord Higgins, put his finger on the central issue that we debated at some length on Monday and on which I have since had a chance to reflect. The Government seem to be taking two positions. One is that it is possible to separate economic policymaking from economic forecasting. I used to lecture on this subject and I can say categorically that that is simply nonsense. I cannot believe that any serious economist would accept that the two can be separated. In fact, the correct position is entirely the opposite. The optimal macroeconomic policy and the optimal macroeconomic forecast are part and parcel of the same piece of economic analysis. That enables one to focus, first, on the major difference between some of us and the Government on this matter.

The second position, again echoing the noble Lord, Lord Higgins, is that however we define sustainability—several of us could try and I will have a go at it when we get to Report—the presumption that one should not make, and indeed economics tells us that exactly the reverse is the case, is that there is one unique state of government finances that is sustainable, rather than a multiplicity of such states. Therefore we must not make the error of assuming that there is only one sustainable policy, whatever the definition is.

Finally, since Monday I have had a chance to read the Economic and fiscal outlook. It reminds me of a debate that has been going on in economics for about 100 years, which is normally encapsulated in the phrase “measurement without theory”. The great Nobel prizewinning economist attacked the founders of the National Bureau of Economic Research because they were great believers in measuring, but in doing so without theory. I am in a tiny minority here because I do not think much of this report as a piece of economics. It is an example of economic forecasting without theory, and that is really not the way to do it. So my intervention is to make it clear that we need some clarification from the Government, and what we need to accept that there are many possible policies that might be pursued, along with many sustainable positions.

[Lord Sassoon]

My Lords, I regard the question of sustainability as very important, so much so that although I will give a brief definition, because I have been asked what the Government mean by it, the critical issue for the OBR is concerned is that it should have an unfettered ability to look at sustainability in its broadest sense. I see that the noble Lord, Lord Peston, is nodding in agreement. The main objective here is not to constrain the OBR by giving it some sort of government laid-down definition of sustainability—there is more nodding, for which I am grateful—so while I can give my own overview definition of sustainability, that rather misses the point. Sustainability is part of the Treasury’s overall fiscal policy objectives, and to the Government, the sustainability of the public finances means putting them on a footing from which they can withstand shocks. It means keeping the deficit down so that debt does not spiral out of control. That is the fundamental of it, and it is the Treasury’s responsibility to make policy that supports sustainable public finances. That would be my overview of where we start.

The important point is that the OBR should take this matter away. It seems to have indicated that this is not an easy thing to do, and has already made that clear in its remarks both in the Pre-Budget forecast earlier this year and in the November document, the Economic and fiscal outlook. The OBR talks about what it has done, and critically it says that it will examine the issue of sustainability in detail in the fiscal sustainability report due next summer. That is at paragraph 5.25 on page 140 of the latest document. There is a section on sustainability and, indeed, a chapter on fiscal sustainability, including, on page 55 of the pre-Budget forecast document, lots of complicated equations that are beyond my grasp of economics. The OBR is already, quite rightly, beginning to analyse this. It recognises that a lot more analysis is to be done, including looking at the implications of a number of relevant government policy areas and reviews. It has set all that out. The critical thing here is that we make sure that the OBR is allowed to do that unfettered.

I would not necessarily want to constrain the OBR in the way suggested by Amendment 27. I am sympathetic to the principle, because I think that it absolutely has to explain the context of any work that it does on sustainability.

[Lord Peston]

The amendment is not meant to constrain the OBR; it simply asks it to tell us what it has in mind, which I think is what the Minister is saying.

[Lord Sassoon]

Indeed. The question is: what is appropriate to put in the legislation? There is an element here of risking treating the OBR inappropriately by telling it to do things that are clearly already self-evident to the OBR, in that it has already started to make significant comments on sustainability but is not rushing to final conclusions or making it the subject of a separate major piece of work. Therefore I am absolutely sympathetic to the principle but I am not sure that we should get into the game of writing down everything that the OBR is to do. The question this provokes in my mind is whether anything more should be said about this point in the charter. If there is any more to be said, it should be in the charter, and it is in that context that I should like to reflect on the substance of Amendment 27.

Amendment 18 makes an explicit link between the OBR and the Treasury’s objectives and mandate. I absolutely agree that it is important for the OBR to work in the context of these objectives and the mandate. Therefore, the purpose behind my noble friend’s amendment is entirely appropriate but I am a little concerned that, taken particularly with Amendment 30, it would not provide sufficient protection to keep the OBR out of what could become broader and politicised debates about policy scenarios.

I have thought about this carefully. I believe that the current design achieves a balance for the broad remit for the OBR with a sufficiently clear focus on government policy, and any amendment in this area would need to ensure that that careful balance was protected. I am worried that the amendment might challenge that. As I said, I believe that the substance of what is intended is already in the Bill. I very much took to heart the words of noble Lords on this area at Second Reading, including those of the noble Lord, Lord Burns, who noted the importance of the OBR not being drawn into wider political debates and not opining on alternative policy options. We have to keep the OBR focused on the fact that its forecast has to be of the economic policies that have been decided by the Government. However, we should not through inappropriate drafting risk taking the OBR into debates about the policy itself.

I shall continue to think carefully about whether we have got the balance right, but I hope my noble friend understands that we may risk drawing the OBR into something wider than I suspect he intends. I ask him to withdraw the amendment.

Budget Responsibility and National Audit Bill [HL]

Lord Peston Excerpts

Monday 29th November 2010 Grand Committee

[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”.

[Lord Peston]

My Lords, I shall speak specifically to the amendment in the name of my noble friend and myself, but what I say will also be very relevant to the other three amendments in the group.

Overwhelmingly, economists—I certainly include myself here—regard budget responsibility, or more generally financial soundness, as desirable, but within serious economics that desirability would be a means and not an end in itself. The end that one would have in mind in asking, “Why financial soundness?”, or, “Why financial responsibility?”, is the behaviour of the real economy. I know nothing in economics that tells anybody anything other than that the behaviour of the real economy is what we should be concentrating on. That is the specific purpose of my noble friend’s amendment and it is quite specifically the purpose of Amendment 2.

Noble Lords whose memories go back a long way will realise that the amendment in my name and that of my noble friend Lord Barnett is simply an echo or, perhaps more than that, more or less a restatement of Section 11 of the Bank of England Act 1998, which set up the Monetary Policy Committee of the Bank of England. Essentially, it is derived from the very famous subject of that section. We wish precisely that to appear in this Bill. Indeed, it would be absolutely absurd for the Monetary Policy Committee of the Bank of England to take account of Her Majesty’s Government’s economic policy for growth and employment—the real economy—and for the OBR not to do so. It is difficult to think that anyone could rationally have talked themselves into that position and I cannot believe that that is the position that the Government want.

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[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, since one or two noble Lords have joined us since the beginning of our sitting, perhaps I should repeat in essence what the noble Lord, Lord Eatwell, said about why we started rather later than anticipated. As he said, a request from the Opposition that Grand Committee should begin after the Statement in the Chamber to allow them to prepare a response was agreed to through the usual channels. I apologise if not all noble Lords were aware of the change of plan. I think that the Chief Whip announced it to the whole House following Oral Questions, but perhaps not everybody was there.

Perhaps I should go back to the Government’s overall approach to the charter as background to Amendments 1 to 4, because they all touch on the addition of economic objectives.

[Lord Peston]

I may implicitly be criticising my noble friend Lord Eatwell in saying that I was not under the impression that the charter was part of what we are dealing with here. There is no specific amendment at this point about it. I want to talk about the charter, but I do not want to be forced to do it now just because it has been mentioned. Apart from the fact that the economics of intergenerational fairness, as my noble friend will know as well as I do, are so complex that I doubt that we would make much progress with the matter here, I am a little disturbed that we are suddenly going off in a direction that does not relate to the three amendments before us.

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[Baroness Noakes]

I have been listening to what my noble friend has been saying. He seems to be saying that we cannot have the words relating to economic policy because we want this to relate to fiscal policy only. If we step back, it seems to me that the economic policy of the Government ought to be as capable as the fiscal policy of being subjected to the transparency objectives that the Government have set out. Indeed, one of the things that the Government are to be genuinely lauded on is their approach to transparency, not only in relation to the Office for Budget Responsibility but also, for example, in relation to the publication of expenditure amounts over £25,000.

Transparency has been one of the watchwords of our Government, but we come to the Bill and, for some reason, we are saying that the Office for Budget Responsibility will be required to look at our fiscal policy mandate only, not at our economic policy objectives. It seems to me that there is a transparency deficit if we are saying that we have to exclude economic policy, as it seems directly related to what the OBR will be doing. The only reason that my noble friend has given is that the Government have decided not to include it. Like other noble Lords, I am struggling for the rationale for excluding the Government’s economic policy.

[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]

Yes, I am rejecting it. I am nervous of getting another lecture of the formalities of how we operate in Grand Committee. I had understood that we went through the formality of my doing the proposers of amendments the courtesy of formally asking them whether they will withdraw. If that is not the process, somebody will no doubt advise me. While the amendment has led to some interesting observations about the precise wording of the fiscal policy mandate and other aspects of the charter, in relation to the basic question of whether the Bill—and, by implication, the OBR’s work—should be opened up to a much wider commentary on the Government’s wider economic policy, I think absolutely not.

[Lord Peston]

There is no problem on the formalities. I am someone who has become a great advocate of Grand Committees as a way in which to deal with almost all our Bills, because I interpreted these Committees as a place where there could be a meeting of minds and where the Minister thought about things rather than writing down, as my noble friend Lord Myners said, “Reject, reject, reject”. If that is really what we are going to get, I do not know whether I personally will bother to waste my time with him. I regard it as outrageous if we are going to get rejection after rejection on the next amendment and the one after it. If that is going to be his style, because essentially that is what he has been told to do, why are we here?

[Baroness Noakes]

If the noble Lord does not ask for the amendment to be withdrawn, it will be agreed.

[Lord Peston]

It is not the formalities that I am talking about but the style.

[Lord Sassoon]

I am only a new boy to this process, but I cannot believe that the noble Lord, Lord Peston, is beginning to suggest that because a Bill comes into Grand Committee we have to accept everything that is proposed in amendments. Yes, there may be a run of amendments that I and the Government see little merit in but, if I see merit in them, I shall respond accordingly. There does not seem any point in my saying in a wishy-washy way that it is all rather splendid and that I shall go away and think about it when I think that the amendments do not have merit.

[Lord Peston]

The noble Lord misses my point, which is to ask whether this is how he is going to treat all the amendments. He knows how he is going to treat them because the documentation is sitting behind him at this very minute. If that is what is going to happen, except on trivial amendments, I repeat my question: why are we here? We expect the Government to say, as a minimum, on some of the substantive amendments, “The arguments have been good and we must go away and think about them”. If we are not going to get that on anything substantive, I repeat: why are we here?

[Lord Sassoon]

We should not prolong this for too long—although I am happy to. If I feel, having heard the arguments, that I should take the amendments away or that I should accept them, I will say that. I will try to tell noble Lords what I believe, but I do not believe that these amendments have any merit. If there are amendments that I believe have merit, I will endeavour to make that abundantly clear.

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[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.

[Lord Peston]

My Lords, perhaps I could take us back into the history of some of this. When what became the Bank of England Act 1998 appeared before us as a Bill, it had exactly the same fault that this Bill has in referring to the House of Commons as the House that would look at the Monetary Policy Committee of the Bank of England. My noble friend Lord Barnett and I moved an amendment in a slightly different form from this one. It said, “delete House of Commons and insert Parliament”, and it was accepted. I did not know it at the time but that happened over the dead body of my right honourable friend the former Prime Minister and Chancellor. However, that went in. At the same time, we set up the sub-committee of the Economic Affairs Committee to look at the Finance Bills. As my noble friend Lord Barnett pointed out, we cannot amend Finance Bills, but the Clerk of the Parliaments wrote a definitive statement, which I hope the Minister has read, saying that there was nothing in Erskine May to prevent the House of Lords looking at Finance Bills. The House cannot amend them, so we set up the sub-committee of the Economic Affairs Committee to look at them. The House of Lords can look at the substance of Finance Bills—it can look at any bit of them, according to the Clerk of the Parliaments. That is the definitive view. However, it can only draw attention to certain considerations; it cannot amend. So that is the history.

The amendment in this context would do exactly the same thing. It would enable the House of Lords, in various ways, to involve itself in scrutinising the Office for Budget Responsibility, as my noble friend Lord Myners pointed out, but we would have no powers to order it to do anything at all. That is essentially the position of the House of Lords in making a contribution.

I think I may be speaking only for myself when I say that I have a certain amour propre for your Lordships’ House. I have been here a long time. In my younger days when I was an LSE student, I would have abolished it like a shot. When I got here, one of my noble friends said, “You were hardly here a day when you sold out, and you just love the place”. That has been my position for 23 years. I take a certain offence from the fact that the Bill does not include the House of Lords.

--- Later in debate ---

[Lord Sassoon]

I had not intended to go down this interesting byway, but there has been a singlehanded contribution by the noble Lord, Lord Myners, to a considerable increase in the number of Written Questions. I am very happy to give him the figures, although I do not have them to hand. The number of Questions for Written Answer that the Treasury has had to deal with in the past six months has been significantly above the figure that previous Ministers in the Treasury—principally the noble Lord himself—have had to face. Nevertheless, our record on answering Questions on time has improved dramatically, and I am very happy to supply the noble Lord with the data. I am conscious that we are scheduled to go on for only another 35 minutes, so perhaps we should go back to the Bill. However, with regard to answering Treasury Questions, I am happy to discuss the relative performance of this Parliament compared with the previous one if it would interest the noble Lord, although I shall do so on another occasion.

We want plenty of scrutiny in this House. Clauses 1(4), 1(6), 2(3) and 8(2)(b) all confirm that the OBR’s reports will be presented to the whole of Parliament, not just to another place. I will return specifically to the question of committee scrutiny, but it is important that the Economic Affairs Committee of your Lordships’ House should have, and will have, responsibility for whatever it thinks appropriate in considering economic and fiscal issues, including those that relate to the OBR. However, I do not believe that any of the amendments in this group are necessary to achieve that.

When it comes to the relatively narrow but important point on formal approval of the charter, perhaps this will not surprise noble Lords, but I very much lean towards the argument of my noble friend Lady Noakes, because, critically, the charter contains the fiscal mandate, which I believe should be properly considered in another place, rather than here.

[Lord Peston]

Is the noble Lord actually saying that the definitive view of the Clerk of the Parliaments is mistaken? The Clerk of the Parliaments states categorically that this House can look at fiscal matters; end of story. Why is the Minister taking the view that he is taking?

[Lord Sassoon]

I have made it completely clear that I think it is absolutely appropriate and important that this House considers fiscal and economic matters; and within the framework of the Bill there are opportunities to which I have specifically drawn attention, whether they are on the Floor of the House or in the Economic Affairs Committee. I am not for one minute challenging the ruling, but that is a different proposition from the specific proposition that this House should be responsible for voting on the adoption of the charter, which has within it a specific mandate that is in the province of another place. That does not cut across the absolute right that this House must have, whether in full session or in a committee, to consider fiscal matters, and I have drawn attention to four references in the Bill where that is made completely clear. That is different from the question of the approval of and voting on the charter, which contains the mandate. That would be straying into territory into which this House should not stray, as my noble friend Lady Noakes has said. The same principle held under the previous fiscal policy framework. I am not saying that just because something was held previously it should necessarily mean that it should always be right, but it is important in this context to remind ourselves that the code for fiscal stability, which the charter replaces, was approved and subject to amendment through a resolution in another place; and the fiscal targets set through the fiscal responsibility—

--- Later in debate ---

[Lord Sassoon]

I am grateful to my noble friend. Clearly, whether it is comments from the EAC or the comments that we have already had today—we will no doubt get more as we consider this Bill—as any comments come in on the charter, we will listen. We are very willing to take them in any form. I am not sure whether there is a way to accommodate another formal sequencing of comments, but we are absolutely open to comments and the charter has already been out there in public for a week.

It is also worth mentioning that the Delegated Powers Committee of your Lordships’ House has looked at all the delegated powers in the Bill, including the provisions for the charter to be approved in another place. It is perhaps worth reminding ourselves that that committee said:

“There is a very full memorandum for the Committee from H.M. Treasury which covers all of the delegated legislative powers and also some other powers of an administrative character. There is nothing in the Bill to which the Committee wishes to draw the attention of the House”.

That is an important and considered view from our guardians of delegated powers. I take the point from the noble Lord, Lord Turnbull, that we should not lose any opportunity to get comments on the draft. I hope that I have reassured noble Lords that we absolutely see the Economic Affairs Committee and the House itself continuing to take a broad interest and to play a part in holding the Government and the OBR to account on this framework but, on this precise point, we must be careful not to stray over the line of constitutional propriety in a way that was certainly enshrined in the previous fiscal arrangements.

I should say one or two things about Amendment 8. The noble Lord, Lord Eatwell, described it as “cumbersome”. I was not going to use anything quite so direct but he goes to the heart of the point. Clearly, Parliament plays an important role in scrutinising the appointment of the chair of the OBR and other members of the BRC. I think that we have gone further, in that respect, than in any other appointment processes. However, whether it is because it is cumbersome or simply goes a step further than is necessary or appropriate, we believe that the Treasury Select Committee is the most appropriate means to exercise that scrutiny, given the nature of the body.

I do not want to labour the point, but we must remember that the chair and other members of the BRC may appear before the Economic Affairs Committee to discuss the work of the office. From a government perspective, I would welcome the scrutiny of the EAC, but I think it is right to preserve the role of the Treasury Select Committee on, specifically, the appointment.

This links with Amendment 35, the final amendment in this group, which requires that OBR members must appear before or provide evidence to the Treasury Select Committee or the Economic Affairs Committee of your Lordships’ House when requested. To restate the point, I agree with the principle of the amendment, but my understanding is that the power to summon individuals to give evidence to parliamentary committees is already in the Standing Orders and that is the way that we customarily leave it. This amendment would place in statute arrangements relating essentially to the internal procedure in the House, and I believe they are not matters that it would be appropriate or necessary to put in the Bill.

This group of amendments helpfully draws attention to the important role of this House in scrutinising critical aspects right across the OBR’s remit. That is important in the context of, particularly, the EAC’s ongoing role in broader economic policy-making. There is nothing in the Bill that constrains that, but we should not stray over the line in the one rather narrow element that some of these amendments relate to. It is not necessary to enshrine in the Bill matters that are customarily dealt with through the Standing Orders. I hope that I have sufficiently answered noble Lords’ concerns on these issues and explained how we think that the proper role of the House is very much enshrined and that the amendment will be withdrawn.

[Lord Peston]

On Amendment 35, is the Minister saying that he is absolutely confident that, within our normal arrangements, this amendment is not needed because it would be inconceivable for the office to refuse to appear before the Economic Affairs Committee of your Lordships’ House on the grounds that it was none of its business? Is he saying categorically that he knows that it could not refuse—to use my noble friend Lord Eatwell’s word—a reasonable request from the Economic Affairs Committee to appear before it? Is he absolutely certain that is so, because the amendment went down to get a reply that said it is not needed?

[Lord Sassoon]

My clear understanding is that the Standing Orders absolutely give all the necessary authority to committees of this House to summon members of the OBR, just as they summon other people to appear before them. I see no let or hindrance particular to the OBR.

Finance: Fiscal and Monetary Policy

Lord Peston Excerpts

Tuesday 2nd November 2010 Lords Chamber

[Lord Sassoon]

My Lords, in the judgments that my right honourable friend the Chancellor of the Exchequer made about how to achieve the huge and very necessary consolidation of the fiscal position here, by the end of the consolidation period, 77 per cent of the burden will have been taken by expenditure cuts and only 23 per cent by taxation, because it is precisely by not raising taxes and choking off growth that we will get the economy growing again in a balanced way. I am grateful to my noble friend for bringing our attention to that matter.

[Lord Peston]

My Lords, the Minister rightly reminded us of the legislation under which the Monetary Policy Committee operates, which obliges it to hit an inflation target. There is also a “subject to” clause that has troubled all of us for years. Will the Minister interpret for us the Government’s present view of “subject to”? In particular, where do the Government stand on the restoration of full employment as an aim in our economy and as an achievement?

[Lord Sassoon]

My Lords, the Chancellor writes a very clear mandate letter to the Governor of the Bank of England for the Monetary Policy Committee to hit a target of 2 per cent for the 12-month rise in the CPI. Of course, that is the same target that was set under the previous Government. It is up to the governor and the MPC to interpret the Act in the appropriate way. As far as concerns employment, we must think about the OBR forecast which says that on the Government's policies laid out in the Budget, unemployment will fall and employment will rise in every period considered by the forecast.

Comprehensive Spending Review

Lord Peston Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Peston]

My Lords, my contribution is based on three premises: this is the most reactionary economic statement of modern times; the proposals will do serious damage to our economy; and, to echo the remarks of my noble friend Lord Myners, there is no immediate crisis and the Government should have adopted a much more deliberative approach.

The first sentence of the spending review Statement by the Chancellor said:

“Today is the day when Britain steps back from the brink”.—[Official Report, Commons, 20/10/10; col. 949.]

There was no brink; there is no brink. Britain is not, and never was, on the verge of bankruptcy. There was no financial catastrophe. The Chancellor’s reference to financial catastrophe merely indicates something that I deeply fear—namely, that he has entered into fantasy land. As one sees from reading the whole Statement, he never leaves it. As a devoted watcher of the “The Wizard of Oz”, I deeply appreciate his frame of mind, but I thought that this was a serious matter of economics confronting the country and that fantasy is not what the Chancellor really does. I regard his document, despite the damage that it does, as intellectually frivolous.

My noble friend Lord Myners referred to the alleged burden on future generations. Are the Government suggesting that we should have fought the Second World War on a no-borrowing principle? We have all gained from the defeat of the Nazis. The period did not strike me as being terribly bad, although I was only a child. We paid taxes then to finance the national debt that resulted. If we are now to defeat terrorism, are the Government asking us to believe that, if necessary, we should not borrow to finance the resources that we need to do so? The Government are in fantasy land. As my noble friend pointed out, we donate so many good things to future generations that there is, as far as I know from my limited knowledge of economics, no reason not to place a bit of the burden on our children. They will thank us for what we gave them.

The noble Lord, Lord Lamont, referred to recent GDP figures. There have been three good quarters. However, it has been overwhelmingly established by all the economic research that I know that what happened in that period was determined during the previous two years. Not a single bit of the recovery that we observe is remotely attributable to this Government. I looked in vain for the Chancellor in his Statement to thank his predecessor for the legacy that had been left him. He did not even have the courtesy to admit that that was the foundation that was given to him.

The Chancellor devoted a whole hour to a speech that, apart from being reactionary, was one of the most uninteresting of all time. He referred to the IMF. The IMF and the European Central Bank are the two last repositories of completely outdated and erroneous monetarism. They, too, believe in the doctrine, “Private expenditure good, public expenditure bad”. The noble Lord, Lord Lamont, et al tell us that this is not ideological; I tell them that it is entirely ideological. It is all about the kind of society in which we would like to live. We cannot avoid that.

The Chancellor said in his Statement:

“The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts”.

Since the official forecasting was done by the economists in the Treasury, who I assure your Lordships are of the highest quality, his remark is totally defamatory. If he had made it outside the Commons Chamber, I wonder what would have been said. The idea that those economists did not give a Chancellor of our time or the Chancellor of this time their best and honest views is preposterous. The Chancellor continued:

“I can confirm to the House that the OBR and its new chair”—

I always use the word “chairman”—

“have audited all the annually managed expenditure savings in today’s statement”.—[Official Report, Commons, 20/10/10; col. 949.]

Is there any published documentation corresponding to that statement and, if so, where can I find it so that I can read it?

[A noble Lord]

It is in the document.

[Lord Peston]

No, it is not in there. That is not a document from the OBR; it is a document from the Government.

To what extent is the Chancellor talking to the head and other members of the OBR, who are meant to be independent? If they are meeting, were minutes taken? If so, could we have copies of them so that, for the sake of transparency, we know the nature of the argument that we are dealing with?

The Chancellor tells us that we are all in this together. I refer to the great economist Michal Kalecki, who in 1943—note the date—wrote a brilliant article in Political Quarterly. He said, apropos of exactly what the Chancellor has said:

“For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’—unless you happen to have private means”.

I wonder whom Kalecki, if he were alive today, might have in mind. Of course, they are not laughing, because they know what this is really all about.

[Lord Marlesford]

I was brought up on the great Kalecki and my recollection of one of his fundamental theses was that the only rescue and hope for capitalism was armament and war. That has not been proved true.

[Lord Peston]

That is not true—that was not his view. What is interesting, if I may give a lecture on the history of economics, is that we can distinguish Kalecki from Keynes, although Kalecki made the great mistake of publishing in Polish and therefore was never fully appreciated. Keynes was attacked, particularly by the American right, for being left wing, but he really believed that capitalism could be saved and advocated his policy so that we could go back to capitalist free enterprise. Kalecki believed that the ideology of capitalists was such that they would prefer to destroy the system rather than to allow Governments to intervene to save it. I am glad that the noble Lord is aware of Kalecki; the sadness is that his name still rarely appears in any of the economic textbooks.

I refer again to the problem of what we should be doing. The noble Lord, Lord Sassoon, said that none of us was telling him what he ought to do. I shall not send him a bill when I do tell him. I am a Back-Bencher so I speak only for myself. The first thing that I would do to save money, after what one of our major newspapers called the fiasco of the defence review, is to redo that review and realise that our whole future on the defence side depends on conventional weapons. We should announce immediately that we have no intention of wasting any money on the renewal of Trident; our nuclear deterrent is not a deterrent, because no one can tell us whom it deters and, in any case, it is not independent. What this country needs is a much improved set of conventional armed forces. The Government should go back and think about that.

My second recommendation to the Government is to abolish immediately the raising of VAT at the beginning of next year. It is the last thing that the economy needs. I speak only for myself; I have no idea whether others are deeply committed to raising VAT. My view is that abolishing the increase is the stimulus that the economy needs.

Thirdly, the Prime Minister, instead of looking for headlines in his attack on the European Community by telling us that he is a Eurosceptic, should realise that the biggest waste of money in the whole of Europe is the common agricultural policy. If he had any backbone, he would seek a row with the Europeans to abolish that policy. That would save us enormously more money than the trivial sums that we are talking about.