Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Monday 6th December 2010 Grand Committee

[Lord Eatwell]

My Lords, before moving on to Amendment 20, I shall make a couple of general remarks about how we have done so far. All sides want, I think, to make the Bill a success. That is not really a matter of political dispute. The Committee has already unearthed some serious failings in drafting. For example, on fiscal policy, the OBR is supposed not to regard a critique of economic policy as within its remit, but on the issue of judging the sustainability of fiscal policy the context of general economic policy is within its remit. What is it to do? Is it one way or the other?

Then there is the question of Clause 5(3)—the clause with the inverse meaning, as I think of it now. Everybody thought that it was designed to prevent something from being done, but then we discovered to our amazement that it is all about what has to be taken into account. This sort of obscurantist drafting gives the law a bad name. There were also the statements in the charter, notably the reference to “intergenerational fairness”, over which we have the grave suspicion that the person who drafted the phrase had not the faintest idea what it meant.

Yet none of these is a political issue. None of them really merits the instruction, “Resist”. All of them are items to debate and to correct. This is a fine example of why technical Bills such as this should go to pre-legislative scrutiny. Be that as it may, my message to the Minister and to the anxious officials behind him is: “Loosen up”. Let us use this Grand Committee for the constructive purpose that it was intended to have and try to do what we all want, which is to ensure that this Bill works, works well and works for the long term.

With respect to Amendment 20, the OBR has made a major step forward in recognising the uncertainty around the probabilistic nature of economic forecasting —and quite right, too. However, this has clearly not yet penetrated the thinking of government Ministers. In the Chancellor’s Statement last Monday, he boldly declared that the OBR had ruled out the possibility of a double-dip recession, when in fact it had done nothing of the kind. The OBR suggested that there was a 50:50 chance that the growth rate would be 2.1 per cent next year but that, at the same time, there was a significant chance of between 10 per cent and 20 per cent that growth would be zero—that is, that there would be a double dip.

However, while the assessment and presentation of the uncertainty of forecasts have been greatly improved, no progress has yet been made on the other risks embodied in the Government’s overall fiscal position. For example, it is now clear that for the last decade—and I recognise that this was under the previous Government—tax revenues have been overly dependent on taxation of financial services. The severe problems in financial services contributed disproportionately to the fall in government revenues and to the growth of the deficit. This, which is a sort of all-eggs-in-one-basket problem, is a standard feature of corporate risk analysis and could, with value, be introduced into the analysis of public policy as well. Similarly, everyone is now aware that the UK economy has become seriously unbalanced, which is just the sort of issue that would be highlighted by regular and careful risk analysis. If the OBR were to extend its analysis of uncertainty to include a risk-sensitive analysis of the public finances, it would provide a complementary and extremely valuable service to policy-makers and align public policy-making with the best practice in private policy-making and private risk assessment.

Chapter 4.10.1 of the charter relates risks only to,

“risks surrounding the economic outlook”,

but associates the economic outlook only with the forecast, not with the state of the economy as it is. This amendment focuses attention on a wider concept of risk—the risk inherent in the underlying parameters of the fiscal and economic stance—and, by doing so, extends risk analysis into the areas of best practice that are now found in the private sector. I beg to move.

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

My Lords, I am happy to start by saying that I agree that we should, as far as possible, stick to the technical. I am grateful to the noble Lord, Lord Eatwell, for confirming that he would like to make this a technical analysis of the Bill.

I agree that it is critical for the OBR to assess the risk to the public finances and that that should be clearly set out. The amendment proposes that this provision should be in the Bill, whereas we propose that it should be in the charter, first focusing on the economic risks and secondly focusing on the fiscal risks. As the noble Lord said, there are references to risks in chapters 4.10.1 and 4.10.2 of the draft charter: the first relates to the economic forecast and the second relates to the forecasting of the public finances. I believe that together those two references to risk give the OBR a clear and wide-ranging remit. I will think about the specific drafting in the light of the points that the noble Lord has made, but I believe that the charter is the right place for this. Clearly, the drafting on the sorts of risks that the OBR looks at should not in any way constrain it from looking at the relevant risks, so I will have a look to make sure that, on reflection, we have got all the risks covered.

The OBR has, of course, a duty to act consistently with the charter, so it should not be necessary to include this provision in the Bill. However, we must get it right in the charter, which is where I think we should leave it. I ask the noble Lord to withdraw the amendment.

[Lord Eatwell]

Gosh, that was quite a loosening up. I think that the noble Lord has taken the point. In my reading, the charter seems to confine risk analysis to the probabilistic analysis of forecasts—to the fan charts and so on. I want to stimulate the OBR to think about the risks inherent in the economic posture, if we may call it that, of the country at any one time. On the two illustrations that I gave, I think that if forecasters, particularly official forecasters, had been sensitive over the last decade to the excessive share of taxation coming from the financial services and had realised the risk of having all one’s eggs in one basket or had been sensitive to the problems associated with the overall balance of the economy, which I know the Government wish to address, we might have had some danger signals hoisted earlier than they were. However, in the context of the Minister’s assurance that he will look at this issue and perhaps amend the charter accordingly, I beg leave to withdraw the amendment.

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[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?

[Lord Sassoon]

My Lords, this discussion has been interesting because it confirms how much material the OBR has already published, in its economic and fiscal outlook and alongside it, which enables us to have a richer discussion than we might ever have had in the past. I am grateful that the noble Lord, Lord Peston, is nodding. We have made considerable strides. I do not want to rake over old ground, as the noble Lord, Lord Myners, provokes me into doing, but we must keep coming back to the point that he makes by implication—namely, that we have employment and other forecasts in the 150-page economic and fiscal outlook document. We have many pieces of data that we did not have before and we will continue to have them in future.

I hope that we all agree that there is a huge amount of additional transparency. We have fan charts and all sorts of other things that make clear the basis on which the forecasts have been produced. These forecasts are in no way made or influenced by Ministers or their political advisers. I think that we all agree that transparency is at the root of what we are trying to achieve.

The amendments in this group seek to ensure that the OBR publishes the assumptions, economic analysis, data, methods and costings that it uses to compile its reports. We believe that that is absolutely achieved in the design of the structure that we have put forward. The OBR will have a statutory duty to act transparently. Chapter 4.8 of the charter states that,

“the OBR is to act openly, setting out with clarity the assumptions and judgements that underpin its work. It should proactively seek to make available its analysis”.

Thus the general duty is in the Bill, which is backed up by the wording of the charter that expands on it.

We now have evidence from last Monday’s document and the surrounding publications of the OBR about how it will do this in practice. Perhaps noble Lords have looked at the 20 Excel spreadsheets on the OBR’s website. I suggest that these give convenient access to the forecast data in a way that has not remotely been done before. In addition to those spreadsheets, over 20 separate documents with supplementary information have been published by the OBR since August.

One of the tests of whether this meets the legitimate demands of the most sophisticated external forecasting bodies is what the Institute for Fiscal Studies noted earlier this year, which is that the OBR had by that stage already published more detail than ever before on the assumptions underlying its forecasts and on the impact that changes in those assumptions would have on revenues and spending. We have made a significant step change. A lot of the information is available in electronic form. The construct of the Bill plus the charter achieves what we all want from this.

I turn to the specific points raised, particularly by my noble friend. The OBR has complete discretion over the model that it uses and what methods go around the modelling. In its recent economic and fiscal outlook report, the OBR had already made some adjustments to the methods that it used in June, so it is moving the way in which it has adopted the Treasury model. The Treasury will continue to retain economic and fiscal forecasting expertise because ultimately Ministers need to be supported by a forecasting capability. That will include the possibility of the Treasury continuing to use its own model, but the official forecasts will be those of the OBR.

[Baroness Browning]

Will my noble friend confirm that, in the event of the Treasury not using the OBR’s forecast, it will give a full explanation of why it differed from the office’s views?

[Lord Sassoon]

Yes, I can confirm that, although that is not in any way the expectation.

On the specific question of the ITEM Club and the model, the club will no longer have a statutory right to be given a copy of the Treasury model because that arose from the Industry Act 1975, which is being repealed. It will be for the Treasury to consider whether it continues to make the model available, but that will not be a statutory matter any more.

On how the arrangements between the OBR, the Treasury and other parts of government work, that will be set out in the memorandum of understanding, including use of the Treasury economic model, although of course it is entirely at the discretion of the OBR as to what tools, models and methods it uses.

On the question of where the assumptions are to be found, I can certainly find them littered throughout the document published last week, including, for example, table 3.6 on page 67, which as I read it is a mixture of inputs and outputs. There are other assumptions made right through the document.

On the critical question of the approach to economic forecasting raised by the noble Lord, Lord Peston, that is summarised in paragraph 3.7 on page 28. I am glad that people find the Treasury monthly report on the latest independent forecasts useful. It is intended that the Treasury will continue to publish that document and make it available on the Treasury website.

I think that the construct between the Bill and the charter covers all the issues on transparency, something that we all seek, and I suggest that the evidence so far of the OBR in practice means that we should have confidence in that construct. On that basis, I ask my noble friend to withdraw his amendment.

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[Lord Higgins]

My Lords, we are grateful to the Minister, who has clarified a number of points. I will come back to an obvious and fundamental one. I am still not in the least clear why we will have both an OBR forecast and an official one from the Treasury that will be useful for Ministers. I simply do not understand this.

[Lord Sassoon]

Perhaps I may clarify that. There will be one official forecast, which the OBR will produce. The Treasury will retain a modelling and forecasting capability, but it is absolutely not the intention, and will not be the case, that there will be another official forecast from the Treasury. Ministers simply require the Treasury to retain that capability, so that if, in circumstances that we do not at all anticipate, the Chancellor or the Treasury want to take a different view from that of the OBR, they will retain the capability of doing so. There is absolutely no intention that there should be anything other than one published forecast, which will be put out by the OBR.

[Lord Eatwell]

I do not quite follow that. If the Treasury is going to disagree, or at least have the capability of disagreeing, with a forecast put forward by the OBR, how can it do that other than on the basis of a forecast of its own? I note that the word “published” was slipped into the Minister’s final sentence. Surely if the Treasury is going to have the capability of assessing and disagreeing with the OBR model, it must have some forecast of its own.

[Lord Higgins]

I find this rather difficult. The Minister raises his eyebrows. I simply do not understand what the purpose of this forecast is going to be. Perhaps I may expand on that for a moment. We had an official forecast and we presume that the Government will operate on that basis, but apparently there is to be an internal forecast on which Ministers will base their decisions. The noble Lord is shaking his head.

[Lord Sassoon]

My Lords, there will not be another official internal forecast. There will be the forecast of the OBR, but that does not mean that the Treasury should not have the capability to—and it will—look at underlying assumptions on which the forecast is based, to make sure that it understands where the OBR is coming from and feels comfortable with it. There will not be some other internal official forecast; there will merely be a capability within the Treasury—and it is important that there should be such a capability—whereby Treasury officials can look at and understand the assumptions on which the OBR’s forecast is made. That will not require, and there is no intention for, the Treasury to produce any separate forecast of its own.

[Baroness Browning]

My earlier question came from reading the evidence of Professor Wren-Lewis to the Select Committee. He considered that if,

“the Treasury decides that the OBR model is wrong in some sense, I think basically then it is up to the Treasury to decide whether it wants to move to an alternative model or an alternative way of doing things whereby it produces its own forecast and does not rely on the OBR”.

I understand that the Government accepted that when they responded to the Treasury Committee. That was what prompted my earlier question.

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[Baroness Noakes]

But not today.

[Lord Sassoon]

I love it when noble Lords preface their remarks by saying, “This may not be the place in which to discuss these things”, and then go into freshwater and saltwater fishing. The noble Lord, Lord Eatwell, has already said that his study of the 20 spreadsheets has raised some questions that he will address directly to Mr Chote. If my noble friend Lord Higgins would like me to relay his questions to Mr Chote, I will be happy to do so—or he may wish to write directly. Either way, I will return to the amendment. We have so much transparency already that it is provoking lots of questions that I am sure Mr Chote and his colleagues will be happy to answer. I will be happy to act as postman if that would be helpful.

[Lord Higgins]

I gladly accept that offer and beg leave to withdraw the amendment.

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[Lord Eatwell]

I was hoping to provide space for those who feel as strongly as I do, as apparently does the noble Baroness, Lady Noakes, to suggest alternative arrangements. Indeed, I have put forward my own proposals, which we will discuss later, but a variety of methods could be suggested.

[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.

[Lord Sassoon]

My Lords, I am confused by this, because there are certain other things that I would have thought it would be impossible for the OBR to miss out, such as focusing its forecasts on government economic policies. Where there was a strong wish to put certain things into the Bill that were not there, now it is being said that it is blindingly obvious that the OBR would assess its own performance, so no provision is needed. What goes in the Bill and what does not are matters of judgment. It is my view that this is a sufficiently important matter to justify being included. The noble Lord, Lord Peston, will no doubt be comforted by that, because he has already played back to me the fact that the OBR has stated in its document, Analysis of Past Forecasting Performance, that it is,

“fully committed to transparency, and each year will produce a full and detailed report analysing the accuracy of its economy and fiscal forecasts, and explaining the differences between forecast and outturn”.

It goes on to talk about giving further detail on its forecast methodologies. The office is going to do this anyway and I would like to think that it would be done without the Bill requiring it. However, it is sufficiently important that there should be absolutely no doubting the fact that it will be done.

This is not something that of itself is easy to do. The analysis of forecasting requires fiscal forecasting skills that are in scarce supply. To make the assessment requires access to and full understanding of the data. Critical to the whole process is that actually doing the assessment yourself makes it a learning experience. That goes to the heart of why Mr Chote and his team will do it anyway. We certainly expect to see the OBR doing this and the office has said that it will. However, in the Government’s view the requirement should be on the face of the Bill. In the absence of a discussion that we have not yet had about alternative approaches, I suggest that this is where we need to leave it. For the moment, therefore, I ask the noble Lord to withdraw his amendment.

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[Baroness Noakes]

My Lords, the noble Lord, Lord Barnett, has gone a bit over the top in describing Mr Chote and his colleagues as being “used”. The Statement made by my right honourable friend the Chancellor, to which the noble Lord referred, spoke of an audit of the annual managed expenditure savings. It was not an audit of anything other than one part of the totality of the package that my right honourable friend announced last month. The noble Lord has extrapolated from a relatively small use of the word “audit” into something much bigger that is not justified.

I agree, in a sense, that people such as myself, my noble friend the Minister and the noble Lord, Lord Barnett, who have an accounting background, tend to think that the term “audit” is reserved for this statutory audit function, has a very specific meaning and applies only to the audit of financial statements. However, the term means only “independent examination”, and in that sense I do not see any reason why the figure should not be used.

However, I say to the noble Lord that even when considering the audit of annual financial statements, those statements contain loads of assumptions and forecasts. To do an impairment review, you have to forecast cash flows for 10 years and choose discount rates and things such as that to calculate the figure that you put on your balance sheet. For your pension liabilities, you have to do even more complex calculations involving even more assumptions about the future. So even “audit” has to deal with these difficult areas of future estimation, even within the concept of statutory audit.

It would be helpful if the Treasury were to be reminded that the term “audit” has a rather technical meaning; it would be better to say something like “has independently examined”. Perhaps the Minister could take back to the Treasury that its lexicon could have that amendment added. I come back to my basic point, though, that the noble Lord, Lord Barnett, has gone a little over the top on this amendment.

[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 Sassoon]

I would need to go back to the Treasury website, but I believe that in among all the supplementary documents there is a commentary. That is on the website, but I do not have with me the suite of documents which back up the big document. However, I believe that the material is set out in the supplementary documents. I would be happy to send the noble Lord a reference for where to find it.

[Lord Myners]

Before we rush away to look for this information on the website, let me say this: the noble Lord is a Minister within the Treasury and shares a floor with the Chancellor of the Exchequer, so no doubt he can give us some sense of how this scrutiny operated. I am trying to imagine in my mind’s eye the 12 or so employees of the OBR scrutinising annually managed expenditure. I am trying to imagine how they would look at the AME of the Department for Culture, Media and Sport, let alone its subdivisions, or the AME of the Department for Work and Pensions. Can the Minister at least give us a flavour of how that work was conducted? That would whet our appetites before we see the full information on the website, as he has assured us we can.

[Lord Sassoon]

As the noble Lord knows very well, if he would like to ask the question, I will pass it on to Mr Chote and his colleagues who, I am sure, would be happy to answer on how they carried out those parts of their remit. It is for them to say how they carried out their remit, and if the question has not been answered satisfactorily by the information already published on the website, I am sure that they would be happy to respond to further questions. Again, I offer my services as post boy, if the noble Lord would like me to pass on the question.

[Lord Myners]

I am not sure that the answer is entirely satisfactory. The Chancellor described this as an audit. He went beyond the language used by the OBR. We are asking the Minister of the Crown, based in the Treasury, to give us a sense of how this scrutiny was conducted. I am beginning to feel that the Minister does not know the answer. If that is the case, it would be helpful if he said, “I have no idea how this was scrutinised”, after which the Committee could form its own view.

[Lord Eatwell]

While agreeing with the noble Baroness, Lady Noakes, I think that there is an important point here. If there is a process of scrutiny that is designed to give us a degree of confidence in the Government's costings and in the forecasts made by the OBR, it would be helpful to know, when the OBR scrutinises the costings by the various departments of their savings, whether it agrees with them 100 per cent. If it does, that would be very disturbing and unfortunate: it would be like an old Soviet election. We would expect a degree of disagreement—perhaps not much, but a bit—which would give us confidence in the scrutiny process. It would be helpful if the Minister would tell us whether in the scrutiny process the agreement was 100 per cent or rather less.

[Lord Sassoon]

I am grateful to my noble friend for trying to bring this back into perspective. Of course the OBR scrutiny, as the noble Lord, Lord Eatwell, acknowledged just now, will be based on challenging the assumptions underpinning the AME costings. How it then formed the judgments that it did is for the office, not me, to interpret. However, I am happy to point noble Lords towards what has been published and see whether there is anything else that the OBR thinks would be helpful to say on the matter after the discussion this afternoon. Clearly, the OBR will not sign off on its scrutiny of AME savings if it does not think that the methodology and the numbers are reasonable.

[Lord Barnett]

My Lords, there is no need for noble Lords to waste their time looking at websites. I submitted a Written Question to the Minister asking when the OBR scrutinised these particular points. The Answer stated that the noble Lord, Lord Sassoon, passed my question to Robert Chote, who quickly gave me an answer. He referred in particular to chapter 3 of the 150-page document. I went through chapter 3 very carefully. Like the noble Lord, Lord Peston, I could not see in the whole of the chapter any details about scrutiny—far from it. Chapter 3.2 states:

“This is our central projection, or in other words, we believe there is an equal likelihood that growth will turn out to be higher or lower than we forecast”.

How do you scrutinise that? Or perhaps you should audit it. Or perhaps I have been going over the top, as the noble lady, Baroness Noakes, said. If I really wanted to go over the top, noble Lords on the Committee would know that they have heard nothing yet.

The noble Baroness, Lady Noakes, seems to think that she is still sitting on the Front Bench. I do not mind that. She was very good on the Front Bench. Occasionally she got it right. However, today she tells me that I am over the top. I wish someone, perhaps the noble Lord, Lord Sassoon, would explain where I am over the top. I have said that Robert Chote is being used by the Treasury. That is undoubtedly the case, and all that this brief debate has done is emphasise that. Indeed, the Minister has still not replied, or perhaps he has accidentally overlooked replying, to my Question about how often since or before this report Robert Chote and his colleagues met the Chancellor and other Ministers.

[Lord Sassoon]

Forgive me, but I went through the detail of what was published on the OBR’s website by Mr Chote, and I shall say it again. According to the document released by the OBR on its website, between 4 October and 29 November 2010 there have been seven substantive contacts between the OBR and Treasury Ministers, special advisers and their private office staff, including four e-mails, two meetings and one transmission of a hard-copy document. The details of the two meetings are included in the log on the website. I have tried to give this information and I repeat it now. There have been two meetings—on 4 November and 18 November. The details are set out on the website.

[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.

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[Lord Burns]

My Lords, I support the remarks of the noble Lord, Lord Newby. The noble Lord, Lord Myners, knows that what he is asking for is impossible; we also know that he can be very good at creating a little bit of mischief every now and again and we have to see this amendment in that light.

The OBR can be responsible only for its own documents; it cannot possibly hold the Chancellor to account. That is a job for Parliament, including the Treasury Committee and the Economic Affairs Committee. I can think of nothing that would make the job of the OBR more impossible than to give it a task that began to resemble this. The key thing is that the OBR has to be kept out of the political debate but the noble Lord, Lord Myners, implies that he would like to plunge it directly into that debate. I am sure he has used the amendment as a vehicle to make quite sensible points about some of the practices that occur from time to time, but the OBR will not protect us from those.

[Lord Sassoon]

My Lords, the noble Lord, Lord Myners, accused himself of being churlish. The noble Lord, Lord Burns, accused him merely of creating mischief. I offer no view, but agree completely with the noble Lord, Lord Burns, and with my noble friend Lord Newby, that his amendment would widen the OBR’s remit into completely inappropriate and vastly different territory from that covered by the Bill. The very focused remit in the Bill covers forecasts and the sustainability of the fiscal position. I noted that the noble Lord, Lord Myners, talked about the OBR commenting on the presentation of its report by the Chancellor—which would be difficult, for the reasons given by the noble Lord, Lord Burns—but his amendment goes much wider and is concerned with commenting on major economic statements, which covers a huge range of things well beyond the OBR's focus. I come back to the concerns that were expressed by noble Lords at Second Reading about the critical importance of the impartiality of the OBR. For example, the noble Lord, Lord Eatwell, said:

“I am sure it is right that the OBR should not become embroiled in political controversy”.—[Official Report, 8/11/10; cols. 16-17.]

That is exactly where the amendment of the noble Lord, Lord Myners, would take it—well beyond the sustainability of the public finances, which should be its remit. I ask him to withdraw his amendment.

[Lord Myners]

My Lords, far be it from me to wish to cause mischief. I have listened with great interest to the contributions of the noble Lords, Lord Newby and Lord Burns, and of the Minister. The Minister is correct that the wording of my amendment is very wide—wider than the OBR itself. However, I have often found it helpful in life to start wide, listen to the wise comments of others and narrow down. The noble Lord, Lord Newby, suggested that the word “balance” was capable of widely differing definitions, which would raise issues of implementation, and that possibly the phrase “absence of bias” might be better. I will reflect on that before Report. For the time being, I beg leave to withdraw the amendment.

--- Later in debate ---

[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.

--- Later in debate ---

[Lord Burns]

My Lords, for the reasons that I have set out about the importance of the political impartiality of the OBR, I felt that the original subsection (3), although a little inelegant, did much of its job. However, I also support the spirit of Amendment 31, although I am a little concerned about the use of “effects”, which could in future give someone the opportunity to ask to have particular subsections of government measures analysed for their effects on the economic outcome and on the public finances. I worry that going down that road could cause problems in future.

[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.

[Lord Burns]

Perhaps I may help the noble Lord, Lord Peston. One must assume that the Monetary Policy Committee will abide by the law under which it conducts its affairs.

[Lord Sassoon]

In summary, I cannot promise that there is any way of making all this clearer. I think that there is consensus among us as to what we are trying to achieve in this area. I shall think hard about whether we can make it even clearer. On that basis, I ask my noble friend Lord Higgins to consider withdrawing his amendment.

[Lord Higgins]

My Lords, that is a very sensible reaction on the part of the Minister.

--- Later in debate ---

[Lord Turnbull]

I support the amendment, at least in so far as it relates to Clause 5(2), for much the same reasons as those set out by the noble Lord, Lord Eatwell. These words are meant to be drawn either from the seven tenets of public life set by the Committee on Standards in Public Life, or from the synonyms for them in the Civil Service Code. If there is any amendment to be made it is that Clause 5(2) should bring the words used into line with the accepted vocabulary that is used in these other documents. You would then dispense with Clause 6(1)(b) as it relates to subsection (2).

At Second Reading, the most telling criticisms that were made on an occasion where this initiative was largely welcomed, was the sense that independence was being granted with one hand by the Treasury and that another clause subtly began to claw it back, and that this somehow undermined the sense of true independence. We can dispense with this and, if any changes are desired, the wording of Clause 5(2) can be brought into line with the vocabulary that is used in these other statements of the values of public life.

[Lord Sassoon]

My Lords, I find this interesting because what the noble Lords, Lord Eatwell and Lord Turnbull, have said exemplifies why we need some back-up explanation of these terms in the charter. That must be the right place for it because the noble Lord, Lord Eatwell, started by saying that we could rely on the Oxford English Dictionary definition of the three terms but then went on to refer to the usage given to the terms by the Committee on Standards in Public Life. That in itself points out that, even on his construction of how these words should be used, there are at least two sources. I have neither the OED nor the committee’s statement in front of me, but I would be surprised if they were precisely the same. Then the noble Lord, Lord Turnbull, referred to the Civil Service Code.

In arguing for the amendment, the noble Lords have precisely explained the difficulty that we are in: however you do it, you go back to different sources for the meaning of these important terms. It is therefore important in the charter to try to tease this out. I agree that this could be done in a number of ways; it could refer to the OED, the Civil Service or a number of other things. However, this discussion has reinforced my view that somewhere we need to provide some guidance.

I shall give the Committee another example, very much in this space, about the kind of difficulty that we can otherwise get into, and this relates back to one of our previous discussions. The US Congressional Budget Office has an impartiality remit, but it defines “impartiality” to mean that it has to include analysis of policy proposals made by all political parties. I think that we all agreed earlier that that is precisely what we do not want the OBR to do, and that suggests to me that it is a reason why we need to give a bit of guidance in the charter for what the three critical terms mean. Indeed, Robert Chote himself, following questions on impartiality, told the Treasury Select Committee:

“I think you want to make sure that the remit of the OBR is agreed ex ante, rather than the subject of a contentious debate ex post on whether it is doing what people want it to do … if it is left to the OBR on its own to draw the line, there will always be people just below the line who will be disgruntled … which will reflect on the OBR”.

That was in the context of a wider discussion about the virtues of, and the need for, clarity.

Nothing is set out in the charter that can undermine the Bill. The guidance can relate only to functions conferred by the Bill; it cannot add to or distort them. Further, as we have noted, the charter must be approved by another place before it can come into effect. I have listened carefully to the debate, which has suggested to me that even those who say that we do not need the interpretation of the charter are actually using different definitions. I think that the charter is the right place in which to provide the OBR with the clarity that it quite rightly seeks. For that reason, and because the noble Lord admits that the amendment does not quite work technically, I ask him to withdraw it.

[Lord Eatwell]

I am grateful to the noble Lord. If we get Clause 5(3) right, it may work very well, but we have been chewing this matter over perhaps to excess. The Minister made one point about the issue of impartiality with respect to the Congressional Budget Office. While there is some relationship between the CBO and the OBR, the Congressional Budget Office is actually a creature of Congress. That is different from the OBR, which is a creature of the Executive. It means that we have a very different issue before us.

I am still disturbed by the definition of “objectively”. As I pointed out, the notion of merit and demerit is rather difficult in and of itself, and therefore, in preparing for the final draft of the charter, I would like the Government to consider whether the word “merits” conveys exactly what they want it to.

[Lord Sassoon]

I am not sure whether this will help, but just to be clear, we are expecting the OBR to assess the impact of policies on forecasts. So there is no question of merits and demerits, other than that we are trying to exclude all questions of merit and demerit and keep to the factual impact of policies. I am struggling a bit with any suggestion that we are somehow dragging the OBR into considerations of merit or demerit. The noble Lord took the example of employment and unemployment. All we ask of the OBR is that it should tell us what the factual situation is and absolutely not to comment on its merits or demerits. There is no question of enormity of judgment by the OBR in this or any other respect.

The basic underlying language here is the same as that which applies to the National Audit Office in the National Audit Office Act 1983. That is all we are trying to replicate in this respect, even though this is scrutiny and not audit.

--- Later in debate ---

[Lord Higgins]

My Lords, the amendment, which has a whole clause to itself, is not difficult to understand. The Bill as drafted states:

“The Office must aim to carry out its functions efficiently and cost-effectively”.

The amendment seeks to delete the words “aim to” so that it reads, “The Office must carry out its functions efficiently and cost-effectively”. There would be a loophole if the office could simply say that it was aiming to do this when it may not achieve that objective. More sensibly it should be mandated to operate efficiently and cost-effectively, otherwise it may overspend its budget by an enormous amount and say, “Do not worry, these are unforeseen circumstances. We aim to do it”. I beg to move.

[Lord Sassoon]

My Lords, of course the OBR should be cost-effective and efficient—there is no question about that—and the amendment seeks to increase the requirement for it to be so. However, in reality the amendment would not change in substance the requirement on the OBR because, if it was ever challenged on this point, the challenge would be subject to what it would have been reasonable for the OBR to have done. I agree with my noble friend that it would be nice if we could have more direct language here but I am advised that the amendment would make negligible difference. That is because if it was ever tested in a legal context—one hopes it will not be—the reasonableness of what the OBR had done would be encapsulated in the words “aim to”.

At the risk of the noble Lord, Lord Eatwell, jumping up again, I have to say that this is the same as the requirement on the National Audit Office, as set out in Part 2. It is not necessarily a good defence; I merely observe—

[Lord Eatwell]

We have always done it that way.

[Lord Sassoon]

Of course, in the wider context, the accounting officer will have to answer for the OBR’s cost-effectiveness and efficiency and it will be subject to the normal governance and scrutiny arrangements for public bodies. Those scrutiny arrangements will include an audit, I say advisedly, by the NAO, which will have the power to examine and report to Parliament on a number of matters, including the economy, efficiency and effectiveness of the OBR.

I thank my noble friend for trying to tease out what is going on here. It has enabled me to ask questions and to establish that the words as originally drafted essentially encapsulate the test that a court would use if the OBR was ever challenged. On the basis that we are trying to arrive at the same point, I hope he will withdraw the amendment.

[Lord Higgins]

It will be a question of it coming not to court but to the NAO, which is dealt with in the second part of the Bill. It seems to me that the office would have been on much stronger ground if it was simply told that it must carry out these functions than if it merely said, “Oh well, if it’s all right, I was aiming to but I’ve failed”. None the less, to a degree I take the point made by my noble friend and I beg leave to withdraw the amendment.

EU: Budgets

Lord Sassoon Excerpts

Thursday 2nd December 2010 Lords Chamber

[Lord Campbell of Alloway]

To ask Her Majesty’s Government what assessment they have made of the grounds on which the European Union Court of Auditors has withheld approval of European Union budgets.

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

My Lords, the Government are concerned that the European Court of Auditors has been unable to provide a positive statement of assurance for the 16th year in succession. The Government support the ECA’s work but are concerned at the slow pace of reforms to EU financial management. The European Commission and member states are responsible for disbursing EU funds, and share responsibility for sound financial management. The Government take financial management seriously and will shortly publish a consolidated statement on the use of EU funds in the UK.

[Lord Campbell of Alloway]

I thank my noble friend for his surprisingly encouraging exposition. There is no need on that basis to delve into the grounds of the assessment, because that has been covered. May I by leave ask a question that perhaps the Government may accept? At their behest, by dint of diplomacy, will they seek an arrangement, be it by treaty or by some other means, to ensure that the ECA’s decisions are always reflected, and that they are the only decisions reflected, in the contributions of all member states to the budget?

[Lord Sassoon]

My Lords, I reiterate that we take the situation enormously seriously. It is deeply unsatisfactory, but progress has been made. In their latest report, the auditors have been able to certify a greater percentage of EU expenditure as satisfactory than before. There are significant complications with anything that goes to changes in the treaty arrangements in this area, but the UK is leading by example by, for instance, producing this consolidated statement, which a number of other member states are now producing and which is welcomed by the Commission. We are adopting every route to try to get improvement. We are by no means complacent, nor should the European authorities be.

[Lord Williamson of Horton]

My Lords, this is a good report. Does the Minister agree that, in relation to all the administrative expenditure of all the EU institutions, the court concludes without qualification that transactions were free from material error and that the supervisory and control systems complied with the financial regulation? Does he also agree that, in relation to other policies, the court rightly points out that there are some accounting errors and, in agriculture for example, some incorrect claims from member states, which the Commission will no doubt seek to correct and recover, but that this is not a finding of fraud?

[Lord Sassoon]

My Lords, I can certainly confirm what the noble Lord says. This does not necessarily excuse anything. If around 50 per cent of expenditure nevertheless does not meet the standards, whether through laxities in accounting or administration of the expenditure, it excuses nothing. Indeed, the level of fraud itself, which has been much discussed, is nevertheless at a very low level. According to the work of the European Anti-Fraud Office, OLAF, the level of fraud has decreased from 0.2 per cent of expenditure in 2007 to 0.07 per cent in 2008.

[Lord Kinnock]

My Lords, will the noble Lord further confirm the satisfactory rate at which the statements of assurance can be offered in respect of different parts of the budget? Secondly, will he also confirm that in areas where there is effective measurement of payments in and payments out, statements of assurance—as in administration, as the noble Lord, Lord Williamson, just said—have consistently been given? Will the Minister therefore encourage the Government to try to spread the good habits that have been developed in this country over recent years so that other member states, where there is a higher incidence of error and fraud, conform to the highest standards so that both the Commission and the Court of Auditors can undertake their work at a much more satisfactory level? That would please everyone.

[Lord Sassoon]

My Lords, I am happy to confirm that the consolidated statement that the UK and a handful of other member states are producing is the most useful practical way of demonstrating that the EU funds that the UK administers are well under control. There is little reference in the auditors’ reports to any matters in the UK. Leading by example is the way we should do it.

[Lord Dykes]

My Lords—

[Lord Dykes]

My Lords, can the Minister confirm again that these are overwhelmingly technical, clerical, administrative and operational mistakes, and not to do with fraud, which accounts for a tiny amount; and that fraud has also occurred regularly in the United Kingdom?

[Lord Sassoon]

I do not want to go over old ground; I have talked about the fraud issue, which we should not get out of perspective. We nevertheless should not be complacent about any of this. There has to be a formal vote each year to discharge the Commission in respect of the audit qualifications. The previous Government never used their vote in this respect when the annual discharge was voted on. As my honourable friend the Economic Secretary has said, the Government plan to be ready to use our vote if the accounts fail to meet the standards that we think they should. We have to strike a balance here and be seen to take tough action if that is appropriate.

[Lord Tomlinson]

My Lords—

IMF and World Bank: Appointment Procedures

Lord Sassoon Excerpts

Wednesday 1st December 2010 Lords Chamber

[Lord Stern of Brentford]

To ask Her Majesty’s Government what assessment they have made of the appointment procedures for the heads of the International Monetary Fund and the World Bank.

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

My Lords, G20 leaders are committed to open, transparent and merit-based selection processes for the heads and senior leadership of all international financial institutions. The UK supports this commitment as part of a broader package of reforms to increase the institutions’ effectiveness and legitimacy. Further consideration is being given to the processes for search, selection and appointment of heads at the IMF and the World Bank.

[Lord Stern of Brentford]

I thank the Minister for his Answer and I declare an interest as a former chief economist and senior vice-president of the World Bank.

Does the Minister agree with the assessment that the system of reservation—because that is what it is—of headships of the IMF and the World Bank for Europe and the United States respectively is outdated, unacceptable in the modern world and deeply resented by the Governments and people of developing countries? Does he also agree that past declarations of the importance of open competitions have not prevented the UK Government from participating in the continuation of these stitch-ups? Does he therefore agree that, to make the openness clear, the UK should support non-European and non-US candidates for these positions? There are many outstanding candidates. I am happy to provide him with a list. If the IMF position becomes available first, Europe must take the lead, as a matter of principle, whether or not the US tries to keep its monopoly at the World Bank.

[Lord Sassoon]

My Lords, I pay tribute to the noble Lord for the distinguished part that he played as chief economist at the World Bank and I therefore listen very carefully to what he has to say. I can confirm that this longstanding, informal agreement whereby the managing director of the IMF was always a European and the World Bank was always to be headed by a US citizen is well past its sell-by date. As I said, we support open and transparent appointments based on merit and in that context, while it is right and appropriate that good candidates from wherever should come forward, the UK’s position is emphatically that appointments should be made regardless of nationality or, indeed, of gender.

[Lord Bilimoria]

My Lords, does the Minister agree that waiting for the appointment of the head of the World Bank is like waiting for white smoke to emerge from the building? We know that the Americans fund the World Bank more than anyone else, but, in spite of that, is it right that the President of the United States, behind closed doors, should have the right to appoint the head of the World Bank in today’s world? With the IMF, why should it be a European? Why can it not be, as the noble Lord, Lord Stern, said, someone such as our mutual friend, Montek Singh Ahluwalia, the deputy head of the Planning Commission in India?

[Lord Sassoon]

My Lords, I will not repeat my previous answers but I draw attention to part of my first Answer. Processes for search, selection and appointment are being worked up by the IMF and the World Bank. I suggest that any candidates that noble Lords think are appropriate for the appointment should apply in due course.

[Baroness Kinnock of Holyhead]

My Lords, is the Minister aware that European countries occupy eight to nine of the 24 seats in the IMF and the World Bank? Does he not consider that we, as one of those European countries, should presume that it is about time some of these privileges were given up in favour of emerging and developing countries?

[Lord Sassoon]

My Lords, I said at the outset that the improvements to the processes for appointing the heads of these organisations must be part of wider reform packages for the entire governance of the IMF and the World Bank. Progress is being made on that in the quota shares, the voting arrangements and the governance arrangements. Equally, it is critical that, under the new arrangements, the four BRIC countries are in the top 10 voting and quota share countries, so we will have a much better balance in both voting and representation. It is equally important that the UK remains a top five member and that we retain our board seat.

[Lord Newby]

My Lords, does the Minister accept that these top appointments are intensely political? Therefore, simply having a process that is called “open and transparent” will not guarantee that the best person gets the job. Would it not be sensible, as the noble Lord, Lord Stern, said, for the British Government to make it clear at this stage that they expect the next head of the IMF and the World Bank not to be a European or an American?

[Lord Sassoon]

I can only restate the position of the Government: these appointments should be made regardless of nationality or gender.

[The Lord Bishop of Liverpool]

My Lords, is the Minister aware that many of the beneficiaries of the World Bank feel that the leadership of both the World Bank and the IMF are out of touch with the complexity of the issues facing the developing world, especially when it comes to land rights?

[Lord Sassoon]

My Lords, I am grateful to the right reverend Prelate for reminding us of what part of the important role of the World Bank is. Indeed, since we are talking about governance arrangements, it is important that there is a commitment to arriving at a new formula for the World Bank shareholding by 2015 that will properly reflect the development mandate of that organisation.

[Lord Grenfell]

My Lords—

--- Later in debate ---

[Lord Grenfell]

I am most grateful to my noble friend for giving way. I declare an interest, having served 30 years with the World Bank and being in receipt of a pension from it. I totally agree with what the noble Lord, Lord Stern of Brentford, has said about the necessity of broadening the field of recruitment. Does the Minister agree that the most important aspect is to make sure that the best qualified person gets the job and that it is extremely important that, whatever negotiations are held, the G20 should not go from one stitch-up, which we have now, to another and thereby end up with the lowest common denominator of approval? We should at least find the best people available for both these posts.

[Lord Sassoon]

I am very grateful to the noble Lord, Lord Grenfell, who speaks from immense experience. I completely agree with what he said.

[Lord McFall of Alcluith]

Undemocratic and non-transparent are the buzzwords of these institutions today. Will the British Government take the lead from the German finance minister who asked for lower representation for European countries so that the sub-Saharan and developing countries can get more representation and so that we have a big step on the way to democracy for these institutions?

[Lord Sassoon]

The Government are pleased with the recent agreements in the IMF and the World Bank that have seen a significant shift of voting and quota away from the developed towards the dynamic, growing economies.

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Wednesday 1st December 2010 Grand Committee

[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.

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

My Lords, although the noble Lord, Lord Peston, says that this is not necessarily the opportunity to try to clarify what is intended, I think that it is worth spending a moment or two to try to tease out what is going on here, although from what both noble Lords said, it is probably now clear what is going on.

As I said at Second Reading, when I was first shown a draft of the Bill, it categorised the two groups as professional and non-professional. That was changed to expert and non-expert, but we are talking about, on the one hand, a group that is expert in the sense of having all the competencies to carry out the role of the OBR—so they are both expert and executive—and, on the other, another group of people who are described in the Bill as non-expert, but we are rightly talking about them as what they are in substance, non-executive. They might be expert or they might not, but the critical thing is that they bring to bear a degree of support and challenge that comes from a different perspective. If they happen to have some relevant expertise, fine, but that is not the point.

The so-called non-experts are non-executives, but are full members of the OBR, which means that they can help to carry out any of the OBR's functions beyond those reserved for the BRC. As I see it, their role will be principally one of support and constructive challenge to the executive members, just in the way that non-exec directors would normally exercise those functions. They may form part of some committee structure, if the OBR so decides—audit is a particular role often assigned to independent non-executives—and they will carry out an important role in safeguarding the independence of the OBR. I have no difficulty with the principle behind Amendment 15, spoken to by the noble Lord, Lord Eatwell. It is just a question of the best way to achieve that.

For a start, we have a statement from the Treasury Select Committee in its recent report on the OBR. It states:

“We will take evidence”—

from the OBR—

“regularly as part of the budget process. We will intervene if we believe the OBR's independence is threatened. We expect the members of the Budget Responsibility Committee or the non-executive directors to report any concerns they have to us. Only if it is independent will the OBR be successful”.

We completely agree with that and would expect both the executive and the non-executive members, whether collectively or separately, to report any concerns on independence. That is clearly implied by the whole nature of the construct. The non-exec non-experts must be people of independent mind and character.

The question is whether this needs to be written in further. My slight problem with requirements to report on things like independence on a regular basis is the risk of becoming formulaic. We want the OBR and the non-experts to report whenever they see any question of a lack of independence arising, and I hope that that will never occur, but my hesitation is that if you get people to report regularly it becomes another box that they tick and another standard sentence that they write. It may actually be more difficult for them to do what in substance there is nothing stopping them doing—there is every encouragement from the Government and from the Treasury Select Committee already—which is to raise any independence concerns in the appropriate way, which may not be in any particular form with any regularity.

I have noted the points that have been raised, but at the moment I am not convinced that writing more into the Bill will necessarily do anything but lock us in to one particular formula. However, I will reflect further on the points that have been put. For the moment, though, I hope that I have answered the questions that have been raised and that that is sufficient for the moment for the noble Lord to withdraw the amendment.

[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.

[Lord Turnbull]

I suggest to the Minister one possible use of this third post: at some stage, it might be thought helpful to recruit someone who has experience in a different country of how this kind of arrangement has worked. The two non-executives—I really do not know why we do not just settle on that as a description, because they are expert at being non-executives—could well be supplemented by someone who brings some other dimension to the affair.

[Lord Sassoon]

That is a very helpful thought. I shall in another context say that the parallel with the MPC is not at all inappropriate. For example, in the MPC or the board of the FSA there is a good record in the UK in recent years of bringing in relevant experts from overseas. I entirely agree with the noble Lord’s thought.

[Lord Eatwell]

My Lords, I am grateful for the noble Lord’s reaction to our Amendment 15; he said that he did not have any difficulty with it in principle. He then suggested that the independence of the OBR should be guarded by an external body—namely, the Treasury Committee of another place. While I have enormous respect for that committee, it would be better to bolster the independence of the OBR within its own organisational structure, rather than relying on an external body to deal with this issue. That is what I was trying to do in my amendment.

The other aspect is that if it is clear that the important role of the non-execs is to bolster the independence of the OBR, it will affect the sort of person who is appointed. You will want people of stature and self-confidence who would be willing to make themselves unpopular in defending the independence of the OBR. That would be a particular sort of person. It is especially valuable that we do not rely on an external organisation and use an internal structure with the non-execs. After all, they are there; we might as well use them to do this job.

I understand the point that a regular report might become formulaic, but this is such a serious duty that serious people would not treat it in a formulaic manner. However, I will take away the noble Lord’s point and see if I can modify the amendment a little.

[Lord Sassoon]

I want to clarify one matter. I was not for a minute suggesting that the Treasury Select Committee would be the sole policeman of independence. Under the current construct without the proposed amendment, I absolutely regard the OBR to be the guardian of its independence—which it shows every signs of being fiercely committed to. I was merely using the wording of the Treasury Select Committee report to point out that there are already external pressures on the OBR from a number of directions, but in no way was I suggesting that it will not already be expected to raise concerns on independence. The reporting mechanisms could include the annual report that will happen anyway. I am simply suggesting that making that mandatory in the legislation risks a formulaic approach.

[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.

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[Lord Barnett]

My Lords, I agree with the noble Lord. Although I am sure that the Minister will consider the amendment carefully before we get to Report, I wonder whether it would be simpler for him to add a few words to it—namely, that the Economic Affairs Committee of the House of Lords might be added to this consideration. I am sure that he would be happy to see that done.

[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.

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[Lord Turnbull]

The noble Lord, Lord Higgins, referred to making this more acceptable to the committee. I remember reading the report of the committee in another place: it did not actually ask for this. It asked for powers on appointment, and for powers of dismissal, which are built in here. Members of that committee did not think this was necessary and I am prepared to back that judgment.

[Lord Sassoon]

I am grateful to the right reverend Prelate. I hope that he will forgive me if I do not offer any thoughts on sin. I know my limitations. I am grateful to the noble Lord, Lord Turnbull, for reminding us that the Treasury Select Committee has not asked for this. We need to get back to the substance of this. Yes, the OBR is a critically important entity. I would not characterise its role quite in the way that the noble Lord, Lord Peston, did, as being involved in economic policy-making, but we had that discussion two days ago. The OBR is critically important. It has a role which it has already begun by producing the official economic forecast. Because that is such an important role, we have as a Government, in agreement with the Treasury Select Committee, come forward with a most unusual role for the committee in respect of appointment of the executive members of the OBR. That in itself emphasises the special nature of this entity.

We have recognised the special role of this body in the executive appointment process, but as to the non-execs, we should not get too excited and think that their role is very different. Are we really saying that the non-execs here have a completely different role to the non-execs on, say, the UK Statistics Authority board, which is another critically important part of the architecture? We risk over-engineering this.

Another point that no one has made is that all public sector appointments are subject to an independent process and a series of safeguards. We must not forget that this is not part of a closed process. I believe that the overall construct is appropriate and we should not over-engineer it, particularly in a way that the Treasury Select Committee has not asked for.

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[Deputy Chairman of Committees]

The Minister was in full flow and presumably wants to continue.

[Lord Sassoon]

I think I had finished.

[Lord Myners]

Before the Minister sits down, I should like to make one point. There is a rather good article in the Financial Times today by Miss Sue Cameron on the subject of the appointment of non-executive directors by government. It starts out by detailing some of the difficulties that the Government appear to be having in getting people of appropriate quality to step forward to take these positions. It then goes on to say that there is a lack of clarity about whom the non-executive directors owe their duties and obligations to and to whom they report. If, as I believe my noble friend Lord Eatwell suggested, the non-executive directors are there primarily to vouch for the competence and independence of the OBR committee, then it begs the question: with whom do they raise doubts about competence or independence? It seems to me that it would be the Treasury Select Committee rather than the Chancellor of the Exchequer. After all, it would probably be the Chancellor of the Exchequer or the Treasury that were encroaching on independence. If that is the case, surely it is also logical that the Treasury Select Committee should be involved in approving the appointment of the non-executive members. After all, those members are the eyes and ears of the Treasury Select Committee within the OBR committee.

[Lord Sassoon]

My Lords, I have not had a chance to read that article. If we have another break, I shall go and do so. The arguments of the noble Lord, Lord Myners, are always powerful and coherent, but there are plenty of instances of where the appointment process does not, for all sorts of different reasons, necessarily have much to do with where reporting lines go. At the moment, quite properly, banks have to do a huge amount of reporting to the Financial Services Authority but the FSA does not appoint the boards of directors, who are appointed by the banks’ shareholders.

[Lord Eatwell]

But the FSA now interviews non-executive directors from major financial institutions.

[Lord Sassoon]

The FSA does not appoint the boards of directors. We are talking here about public sector boards, and I feel that there is little more to add. The Treasury Select Committee has not asked for this, and it does not happen with other appointments. Critical bodies such as the statistics authority work perfectly well under the sort of construct that we are proposing here.

[Lord Myners]

Will the Minister confirm that appointments to this committee will follow the same procedures and processes as apply to membership of the statistics authority? In particular, will he confirm that the public appointments body will be involved in overseeing the process, that these positions will be properly advertised and that due regard will be given to diversity in the specification of the terms of appointment? I think that the Minister is leading in the direction of giving us some comfort that we can look to such parallels but it would be helpful if he could confirm that that is the case.

[Lord Sassoon]

I hope that I can be helpful on that point. The Government expect the appointment process for the BRC to match up to the high standards of public appointments. A bespoke appointment process has been put in place for the BRC executive members involving advertising, independent involvement in the interview process and so on, and that process has been designed to be open and transparent. It is up to the OBR to design the process for the non-executive members but we would also expect that to be open and in line with the principle of transparency. We have high expectations of the quality of the process and I hope that that gives the noble Lord some comfort.

[Lord Higgins]

Am I to understand that the Treasury Select Committee said that it wanted to be involved in the appointment of the chairman and executive members but that it did not want to be involved in the appointment of the non-executive members? If so, that seems a rather extraordinary position to take, but I will accept whatever the Minister says.

[Lord Sassoon]

My Lords, that is indeed the position. It may be extraordinary but, as I have tried to explain, it is entirely consistent with the fact that, as far as I am aware, no other non-executive appointments to a wide range of public bodies are subject to a parliamentary committee veto. Of course, it will be up to the Treasury Select Committee to decide whether it wants to interview the non-executive members individually, collectively or as part of the total board of the BRC, and it will have an opportunity to see them in accordance with its normal processes.

[The Lord Bishop of Chester]

Can the noble Lord comment on the fundamental point I made in my earlier contribution that, as it is set up, it is all rather in-house and too tight and that it does not draw from a wide enough range of sources—for example, the Governor of the Bank of England? One could no doubt think of others, but can the Minister comment on that point?

[Lord Sassoon]

Certainly it is important that the non-executives are people of independent standing and stature who are able to challenge as well as support. That is why there is a critical distinction. It may bring with it some lack of clarity but the expert/non-expert distinction makes the critical point that the non-executives should come from people who are capable of a broader challenge and support role. That is why there is a distinction between experts—which implies a closed group of economists—and a wider group. The posts will be advertised and subject to competition. It will come down, as it should, to the description of the posts, which should allow for people from wider backgrounds to come in. I welcome the right reverend Prelate’s reminder that that would be healthy.

[Lord Myners]

Does the Minister share my concern that, because these two members have not been approved by the Treasury Select Committee—I realise I am taking a different tack from the right reverend Prelate—their credibility, standing and authority as challengers within the committee is in some way diminished, and that, because they have not been anointed by Mr Tyrie and his colleagues, that detracts from their standing and makes them somewhat subservient or subordinate to those who have been approved by the Treasury Select Committee? I ask the Minister to take this away and give it a little more thought.

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[The Lord Bishop of Chester]

My concern was that they are nominated by the office itself in an almost self-perpetuating sense. Whether or not they are approved by the Select Committee is a secondary issue. The more fundamental issue is how an arm’s-length body in such a sensitive and politically charged area should properly draw its membership. The danger is that this is too much like a self-perpetuating body, with the Chancellor involved in every appointment.

[Lord Sassoon]

My Lords, on the latter point, I say again that the fact that it is intended that, as part of the nomination process, there should be an openly advertised way in will make it clear that we looked widely for the non-executives.

Implicit in the remarks of the noble Lord, Lord Myners, about the non-executive members not going through the process of getting the imprimatur of the Treasury Select Committee is the suggestion that all the non-executive board members of a huge range of public sector boards who do not go through parliamentary scrutiny are subservient and subordinate. I do not know why it should be different here. As I have explained, we are applying the same rigorous, high standards to these appointments as are applied to all other bodies. I see no reason why they should be subservient or subordinate simply because they have not had Treasury Select Committee endorsement.

The critical thing is that these are non-executive non-experts carrying out an important role similar to that of non-executives in a huge number of bodies across the public sector. That is very distinct from the expert members who, because of their special role at the heart of economic forecasting—the Treasury Select Committee agrees with this distinction—should be subject to the special veto.

[Lord Eatwell]

My Lords, having had the opportunity to listen to noble Lords who have taken part in the debate, I have become more convinced of the value of the amendment. My conviction derives from the following points. First, we must recognise that this is a very peculiar body, as a number of noble Lords have emphasised. It is of the Treasury but not in the Treasury. It is of the Treasury because it plays an important role in the formulation of the Treasury’s policy by providing it with the information and forecasts that are necessary for the development of policy. However, it stands outside as well. It is that independence with which we have all been concerned. Analogies with other public bodies do not work very well. This is a very peculiar body that we are trying to get right in the Bill.

Having listened to the arguments, the major reason why I am even more convinced of the value of the amendment is that I was involved in such a process when I was chairman of the British Library. I had a very tough and effective chief executive, and we tried to build a board that would serve various important roles at the library. However, we were continually—I was going to say “interfered with” but that does not sound quite right—guided in a very decisive way by the Department for Culture, Media and Sport, which is not one of the most powerful departments, certainly when compared with the Treasury. It played a very active role in the so-called independent nomination process. I was continually having vigorous arguments with the Permanent Secretary at the DCMS in which I would tell her to take her tanks off my lawn and allow us at least to nominate members, as was our right under the relevant Act. I am not convinced that the nomination process will be as independent as might be expected from looking at the simple structure laid out in the Bill.

The amendment would protect the Treasury and the Chancellor from the accusation that there was any compromise to the independence of the OBR in the nomination of non-executives by granting oversight to the Treasury Select Committee. The point is important. Members of the Treasury Select Committee are politicians, and therefore they are very sensitive to issues of political independence. It is what they know about and their area of expertise. They can spot political tendencies a mile off because they are experienced politicians and that is their job. Having listened to the argument, I have become much more convinced of the value of this amendment. I was a little tentative when I set out, but now I am convinced that it is the right thing to do. We will return to this on Report. In the mean time, I beg leave to withdraw the amendment.

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[Lord Barnett]

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

[Lord Sassoon]

My Lords, I hope that we might be able to dispose of this a little more speedily than some other matters today, although it is important. I shall make the situation clear: Robert Chote has announced that the OBR is moving out of the Treasury and will do so—my speaking note says “next month”. I think that we are already in next month. It will be moving out in December. Before Christmas the OBR will be out of the Treasury building and going to Victoria Street, so it will not be too far away. I think that the noble Lord, Lord Burns, noted at Second Reading that the OBR will inevitably work closely with the Treasury. It will be out of the Treasury building but it will not cost its members too much in shoe leather if they occasionally need to have meetings with the Treasury and with other government departments. The OBR is moving out and it is up to that body where it goes. We should not lay down in legislation whether it should go to one place and not to another.

[Lord Myners]

I do not think we can allow it to go unnoticed that the Minister, in his reference to “shoe leather”, assumed that the OBR would be called to the Treasury. I hope that the OBR will be sufficiently independent to call the Treasury to visit it at its own offices. I hope that the Minister is not conveying a subconscious message to us on that point.

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[Lord Brooke of Sutton Mandeville]

My Lords, perhaps I may make an analogy which is completely separate from that that we have been discussing. The SAS is now one of the finest fighting forces in the world, frequently in much demand from the United States Army to work in conjunction with it. That organisation was founded in the desert in 1942 and people were asked to volunteer to join it. If they had been asked to resign all relationship with their previous regiment, I am not at all sure that they would have joined at that stage; nor that we would have had evolving out of 70 years of history the remarkable fighting force that we have.

[Lord Sassoon]

My Lords, we need to step back and, in answer to the fundamental challenge of my noble friend Lord Higgins, remind ourselves of just what is going on here. We need to remember that the people who were making these forecasts under the old way of doing it were essentially Ministers and their advisers, who plucked out from the numbers that the fine Treasury officials were putting in front of them, in some non-transparent way, the forecasts and published them.

In the new construct of the BRC we have Robert Chote and his two fellow members as the body charged with producing the forecasts. We should not lose sight of the fact that that is where the fundamental responsibility for decision on the forecasts will be made. What is needed under the new model—as it was under the old model—is the best possible group of forecasting expertise. The Government recognise that, yes, it needs to be independent and expert. The principal guardians will be the three independent members of the OBR, who must be allowed to hire the best staff. The arguments put forward by the noble Lords, Lord Turnbull and Lord Burns, and my noble friends Lord Newby and Lady Noakes are very persuasive. We do not want in any way to constrain the OBR from hiring and firing whoever it wants to hire and fire. But if we were to exclude it taking civil servants because civil servants would have to resign from the Civil Service, with all the consequences that that might mean for their terms of employment, pension and so on, that would significantly reduce the pool of relatively talented people that the OBR should be able to employ.

Sir Alan Budd, in his advice on the permanent OBR, noted the benefits of the office being established as a Civil Service employer. The noble Lord, Lord Myners, makes an important point, which is that as well as the OBR having freedom, the non-executive directors will take on a role, which is to consider the overall mix of people. There is not remotely a question of complacency here, but we should not invent a problem where there is not one and significantly restrict the potential pool of relevant expertise on which the BRC will need to call.

In answer to some of the questions from the noble Lord, Lord Barnett, about the situation at present, the OBR has 13 full-time staff. They are Treasury employees on secondment because, for as long as it takes noble Lords in this House and Members in another place to pass the legislation, they cannot be employed by anyone else. As soon as the legislation is passed and we put the body on a statutory basis—the sooner, the better, I say—lots of things will be put on to their proper basis, because the OBR will under paragraph 8(1) of Schedule 1 become an employer in its own right. Under the well established terms for Civil Service employment, staff can be transferred, remain within the Civil Service and maintain their Civil Service terms and have the ability to move. They might not necessarily move back to the Treasury, but take a completely different direction in their career.

There are 13 staff now supporting the BRC. Of the three BRC members, Robert Chote is full time and Stephen Nickell and Graham Parker are working, on average, three days a week at the moment. There is no question about the non-execs, because they do not exist. That is how it is at the moment. As the noble Lord, Lord Turnbull, indicated, the expectation is that the steady state of the OBR will be about 20 employees, but that is a matter for Robert Chote. He will make those decisions.

[Lord Higgins]

I intervene because I think that the Minister is winding up on this amendment. Why is it assumed that the staff of the OBR have to be people seconded from the Treasury? It is not as if the world is short of economic forecasters. One has only to look at the list of economic forecasters in the summary which the Treasury produces. Why do we feel that we have to second people from the Treasury rather than recruit them on a competitive basis?

[Lord Sassoon]

It is simply a matter of fact at the moment, because the OBR is not yet constituted on a statutory basis, that the employing body has to be somewhere else and, at the moment, it is the Treasury. The staff do not have to come from the Treasury. Indeed, I understand that an advertisement is out now publicly before the OBR to recruit an economist. It can recruit from wherever it likes; it has the resources to do that. The OBR will recruit to have an appropriate mix of knowledge and expertise, but the critical thing is that that it should recruit from wherever it would like to without any unreasonable hindrance. All the recruitment will be led by the independent, externally recruited members of the BRC. Even though it is not a formal employer at the moment, it is getting on and doing all the recruitment, totally independently.

[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.

[Lord Myners]

I find it extraordinary that the Minister has just disclosed to the Committee that the OBR has a total of 13 staff, including support workers and secretaries, yet the Government suggest that the OBR audited the Government’s forecast expenditure. Auditing is a demanding, challenging and fairly labour-intensive task, as the noble Baroness, Lady Noakes, will no doubt vouch. Auditing future expectations is extraordinarily difficult; to do it with only 13 people makes the use of that word totally inappropriate.

[Lord Sassoon]

There should be no surprise when I say that there are 13 people because I answered a Written Question asked by the noble Lord, Lord Barnett, almost exactly a month ago when the figure was 12. Now, it is 13. I received a note saying “IPA” but I did not say anything about that because I thought, “What does India Pale Ale have to do with it?”. However, I have now worked it out: the OBR has one PA. This is a lean and mean organisation. It includes secretaries and it has one PA. This is not a numbers game; it is a question of expertise and independence and, as has already been referred to, drawing on the underlying modelling base in Whitehall. The OBR does not require a superstructure of people to carry out the critical role that it does. If at any stage it decides that it wants more resources, it will have the ability—we will come to this in later clauses—to put forward the necessary request for money.

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[Lord Barnett]

My Lords, this is a simple question and I hope that the Minister will be able to reply. I have nothing more to say. I beg to move.

[Lord Sassoon]

My Lords, Amendment 13 is intended to create a legal obligation for the OBR to publish the nature and membership of committees or sub-committees and to publish the reports of those committees. It is inconsistent with the right of the OBR under paragraph 11 of Schedule 1 to determine the procedure of any committee or sub-committee. We should not seek to fetter the way in which the OBR organises its committee structure and processes. While I am happy to talk at greater length, we should leave it up to the OBR to determine how its committees and sub-committees should operate. This would be consistent with everything that we have said about the independent and unfettered way that it should go about its business.

[Baroness Noakes]

I am sorry to interrupt my noble friend. The amendment asks simply that the nature and membership of any committee or sub-committee, and the reports of any such committee or sub-committee, should be made public. That does not fetter in any way the discretion of the OBR to set up those committees; it is merely part of the public accountability of the OBR to explain what it does and how it does it. It is quiet simple and I am not sure why the Minister is resisting it on the grounds that he has given.

[Lord Sassoon]

For example, if the OBR wished to set up a sub-committee to deal with internal personnel matters, it would not be appropriate that it should be required to publish details about that. We are making presumptions that sub-committees have a particular meaning. Perhaps we should step back for a moment. The output of the OBR is essentially the 150-page document that it has now produced, along with a number of other reports and analyses that it has already made, and it has set out plans for future work streams. We must remember that this is not equivalent to talking about the Monetary Policy Committee or the yet to be established financial policy committee of the Bank of England, which will have regular monthly meetings to make decisions about policy.

We need to be clear about this. The output of the BRC of the OBR will be a series of policy documents that will not come regularly out of a minute-taking and minute-making process. Perhaps I was presuming a bit too much in my brief answer. The committee’s structure is up to the OBR, but it is likely to have more to do with the governance and management of the entity than with the reporting that comes out in its major documents. In that context, requiring this straitjacket would be inappropriate for the nature of the entity.

[Lord Myners]

My Lords, I speak specifically to Amendment 14, which proposes that the budget responsibility committee should publish the minutes of its meetings. I wait with somewhat bated breath, but with diminishing hope, for the Minister at some point, having whetted our appetite on Monday, to find some sympathy for at least one amendment. I fear that this will probably not be the one that he chooses to approve.

It is pleasing, though, in proposing this amendment, to have the noble Baroness, Lady Noakes in attendance in Committee. My mind goes back to a debate on the Financial Services Bill. The Committee may remember that that Bill, which was produced by the previous Government, proposed the establishment of a council for financial stability. The Government proposed that the council’s minutes should be published. The noble Baroness supported that but went on to propose a number of amendments, including ones relating to the speed with which the minutes should be published and, importantly, a requirement that the minutes should attribute comments to individuals participating in the council rather than being produced in the style of the Monetary Policy Committee.

I hope that we are not now seeing a conversion in the thinking of the Conservative Party, which is the leading member of the coalition, in this respect. When it was in Opposition there was a great enthusiasm for transparency, now that it is in government I hope we are not going to hear arguments that transparency would not be appropriate. If I could be persuaded that there was an argument for publishing the minutes of the council for financial stability—which, noble Lords will remember, succeeded the rather less formal tripartite process—a body that deals with quite confidential matters relating to systemic and idiosyncratic risk relating to individual financial institutions, and if I believed that the party in Government supported the view that those minutes should be not only published but published promptly and in a full and detailed form with attributed comments, then I find it difficult to believe that the Conservative Party would not also approve the publication of the minutes of the committee of the Office of Budget Responsibility.

I go back to the points that were made earlier today by at least two noble Lords: that this proposal would further enhance the appearance of independence—and, no doubt, the effective independence—of that committee and, in so doing, facilitate the role that the Chancellor of the Exchequer and the Treasury clearly have in mind. I urge the Minister to recognise that in respect of transparency this is a good opportunity to ensure that the minutes of the committee of the Office of Budget Responsibility are published.

The Government are already committed to saying that the people who meet the committee of the Office of Budget Responsibility will be identified in announcements made shortly after major publications—I do not know whether such an announcement has already been made in respect of the OBR’s report earlier this week—but it is incomplete to say that the OBR met the Chancellor of the Exchequer on five occasions, Mr David Ramsden on four occasions and economists from the Bank of England on two or three occasions without letting us see how that information shaped and formed the thinking that went into the OBR report. That would be best evidenced through the publication of the minutes, which would allude to any such input that had an important impact on the ultimate thinking and conclusions of the committee of the OBR.

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[Lord Turnbull]

My Lords, it seems that an analogy is being drawn with the Monetary Policy Committee, whose minutes are produced. What happens at the Bank is this. On the preceding Friday of the week in which the committee meets, the members spend the whole day going through virtually every possible economic indicator and receive reports from the agents around the country. That is a meeting, but no minutes are taken. I think the members then meet on the Tuesday afternoon and hold discussions during which they try to sift out what the main measures are to be. Again, there are no minutes, or certainly none that are published. The members then come together at the formal meeting, which is where they take decisions and where the minutes for the record are produced.

In other words, they do not produce a running commentary. We are told here that the BRC has more than 40 challenge meetings with officials from other departments, in addition to numerous meetings at staff level. That is complete overkill and, I would say, a false analogy with the Bank to assume that each of those meetings has to be minuted and published. This thing is published—there are 150 pages of it—and it is produced twice a year. Everything else is work in progress, which leads to the production of the report. We should be satisfied with the fact that it is produced, eventually, after talking to whomever the committee wants to and whatever progress it wants to make. Some of that will include what is or is not in the Budget; some of it goes to the nature of fiscal policy. What is eventually produced is this report. Those are the minutes and I do not think that we need anything beyond them.

[Lord Sassoon]

I am very grateful to the noble Lord, Lord Turnbull, who, I think, gets it absolutely right. There is a further point, which he did not stress, which is that the Monetary Policy Committee is a policy-making committee. It is therefore important to understand how policy, and the thinking behind the policy, is being made. The OBR is not making policy; it is producing forecasts. They are very important forecasts and that is a critical function, but it is not policy-making that requires minutes to understand.

[Lord Myners]

The Minister has made a very important point. Can he clarify whether, because the committee of the OBR is not making policy, any Freedom of Information enquiries made to the committee of the Office of Budget Responsibility will require the committee to disclose minutes of meetings? One of the exemptions that I found—both as a Minister when I was signing the exemptions and which I now find rather more frustrating when I am not getting the information I require—is that the information officer in the department has concluded that this relates to advice to Ministers on policy-making, and therefore the document cannot be disclosed. The Minister has made a clear statement that that committee is not involved in policy-making, and, therefore, that exemption from FOI inquiries will not apply. I hope that he can confirm that my understanding is correct.

[Lord Sassoon]

The noble Lord’s understanding is correct in so far as the OBR will be subject to freedom of information legislation. That is clear. Of course, the example that he gives is not the only exemption. I do not want to disappoint him, but he should understand that, as he well knows, there are other exemptions—for example, where disclosure could prejudice the effective conduct of public affairs. They will be subject to the normal tests. No doubt the commissioner will test them if people want to challenge any decisions, but it will be for the OBR to decide how it interprets the Freedom of Information Act.

[Lord Myners]

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

[Lord Newby]

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

[Lord Sassoon]

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

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

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

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

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

[Lord Desai]

Perhaps I might try once more. There was a birth trauma when the OBR was established, and its independence was undermined by what happened. Sir Alan Budd has publicly said that he suffered as a result. We are trying to help the Government to re-establish trust in this body. They have taken the view that they have done enough—but that is what they said last time. It is fine for them not to accept the amendments, but they will harm the reputation of the OBR.

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[Lord Burns]

My Lords, I support the spirit of this amendment for the reasons put forward by the noble Lord, Lord Eatwell. I am sure that no problems with the budget will arise during the early years of the existence of this body. Indeed, it has probably already been agreed in the present expenditure round. But if we are going to safeguard the OBR into the future, it is necessary to have a system of public accountability and the opportunity for the executive members and perhaps the non-executives to be questioned by the Treasury Select Committee whether they think the resources being made available to them are sufficient to do the job. On this occasion, I disagree with the noble Lord, Lord Higgins, because this is an issue that falls to the Treasury Select Committee as the body with oversight of the extent to which the OBR is doing its job effectively.

In most cases I suspect that these issues would arise naturally, without having to include them in the Bill, so I shall listen carefully to what the noble Lord, Lord Sassoon, has to say in reply. As I said, however, the spirit that is captured in the amendment is an important safeguard in terms of the future of the OBR. That is because in five or 10 years’ time, the circumstances surrounding the body may be very different.

[Lord Sassoon]

My Lords, let me see if I can help by making clear what is actually going on and what is intended here. The first point to bear in mind is that HM Treasury is not incentivised to underfund the OBR because it will be relying on the office to produce the official forecasts. We need to bear it in mind that the OBR provides a critically important component to feed into the Treasury’s economic and fiscal policy-making. I am not sure what the circumstances could be in which the Treasury would want to starve the OBR of funds because it provides such a critical service to the Treasury itself.

The second point is this. Noble Lords may not have seen it, but the funding has been put in place not for one year but is committed through the spending round period from 2011-12 through to 2014-15. The spending letter from Sir Nicholas Macpherson, the Permanent Secretary to the Treasury, has been published by the OBR. It makes it clear that the funding allocation is £1.75 million per year flat cash at a time when the Treasury group settlement is minus 33 per cent. The position for the next few years is clear. Sir Nicholas goes on to say in his letter:

“Should you find that you are unable to manage within the constraints of this allocation, please raise this with me at the earliest opportunity”.

So the initial funding is in place with an open invitation—which, as I have said, is very much in the interests of the Treasury—to the OBR to raise any matters of any potential underfunding. Robert Chote himself highlighted the importance of the OBR’s funding position when talking to the Treasury Select Committee:

“If you accede to my appointment and I find myself being squeezed in that way, this Committee will be hearing about it very promptly. That’s how we make that public and ensure that those sorts of pressures do not go unremarked”.

He is clear in the substance about where he would immediately go.

There are a number of specific safeguards in the legislation that go further. Schedule 1, which provides for the funding arrangements, ensures that the OBR’s independence and effectiveness will be protected. There will be a separate line for the OBR in the Treasury Estimate and the body will produce its own accounts which will be laid before Parliament. Furthermore, it will be able to submit an additional memorandum alongside that of the Treasury, which will be submitted to the Treasury Select Committee.

[Lord Eatwell]

Will the noble Lord give me the paragraphs in Schedule 1 in which those propositions appear, so that I can follow his argument?

[Lord Sassoon]

I will come back to the noble Lord on that: I do not have the Bill in front of me. The point that I was going to make was that there will be a role for both the Treasury Select Committee and the Public Accounts Committee in relation to the expenditure of the OBR. The Treasury Select Committee will take an interest in whether there is any pressure caused by inadequate funding of the OBR. In addition, because the accounts of the OBR will be audited by the National Audit Office, the Public Accounts Committee and the NAO can be expected to take a critical interest not only in the accounts themselves but in any conceivable underfunding that the accounts reveal. Any future Chancellor who attempts to impose any underfunding will get caught, both because the chairman can go to the Treasury Select Committee and can go public at any stage, and because the accounts will be subject to audit. It is paragraph 15 to which we should turn.

[Lord Eatwell]

I thought that it was, but paragraph 15 does not contain the propositions that the noble Lord suggested were in Schedule 1. Paragraph 15 is very short and consists simply of two short sub-paragraphs.

[Lord Sassoon]

Paragraph 15 provides for the Treasury to make payment of grants in aid from the resources devoted by Parliament, as reported in the Treasury Estimates. That brings with it various responsibilities to report the estimates, in this case in a separate line in the Treasury Estimates. I refer also to the production of accounts and the voluntary ability of the OBR to publish any additional memorandum that it wishes. In the incentivisation of all the parties concerned, and principally the incentivisation of the Treasury not to underfund, there is an alignment of interests.

Secondly, in respect of the formal reporting position, through the accounting, Treasury Estimates and the ability of the Treasury Select Committee, the Public Accounts Committee and the National Audit Office to look at the numbers, there are many formal structures. In addition, we have a funding letter agreed by the Permanent Secretary to the Treasury and the chairman of the Office for Budget Responsibility that covers the period up to 2014-15—a settlement that is markedly more generous than the Treasury's own and that contains an explicit invitation for the chairman of the OBR to come back to the Treasury at the earliest opportunity if they find that they are unable to manage within the constraints of the allocation. This is very important and, as with many issues that we are discussing today, there is no difference between us on the objective. There are plenty of safeguards already in place in the legislation and the development practice between the Treasury and the OBR.

[Lord Eatwell]

My Lords, I am grateful for the Minister's reply, although I am still confused about what he thinks is in Schedule 1 and what he thinks is not. I will deal with the points that have been made. First, the noble Lord, Lord Higgins, echoed by the Minister, talked about the role of the Public Accounts Committee and the Auditor-General. They will audit the accounts for honest and true accounting, efficient management of funding and so on, but they will not be sensitive to the issue of the independence of the OBR and its activities, and the degree to which they are constrained by budgetary methods.

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[Lord Eatwell]

Absolutely. I agree with value for money, but the issue that we are discussing is the independence of the OBR in the pursuit of its activities. It may have pursued a constrained raft of activities very efficiently, providing good value for money, but the issue is the constraint. The Treasury Committee would be sensitive to exactly that kind of issue. That is why I have incorporated the Treasury Committee into my amendment.

[Lord Sassoon]

Perhaps I may help the noble Lord on the point of sensitivity. He is absolutely right: the Treasury Select Committee is sensitive to the point and has taken it into account already. It may help him to know that the Treasury Committee issued a press release on 12 October—perhaps he has not seen it—headlined, “Treasury Committee Chairman Welcomes Chancellor’s Statement on the OBR”, particularly on this point. The press release stated that the chairman, Andrew Tyrie, said:

“It is vital that the OBR has the resources it needs. The Committee will monitor this carefully: the Terms of Reference suggest that the Treasury accepts the importance of transparency and separate disclosure, and we will have the information we need to do our work”.

I am grateful to the noble Lord for raising the question of sensitivity, but I trust he notes that the Treasury Select Committee has already said that it believes that what is proposed meets its requirements.

[Lord Eatwell]

The Ministers might care to look over their shoulders; they are being handed advice.

There are two points here that the Minister is getting wrong. First, on the business of being incentivised, of course the Treasury is incentivised to fund the OBR to do the things that the Treasury wants it to do; it is not incentivised to fund the OBR to do things that it does not want it to do. That, I am afraid, dismisses the incentivisation argument. It just does not make sense.

The second point concerns the funding in the current spending round and the comments by Mr Tyrie about that funding, which I welcome, but which do not address the point made by the noble Lord, Lord Burns, about the future. That is what the amendment is about; it is not about what is happening now. As far as concerns the Treasury Committee, the launch funding seems to be adequate—maybe even generous—but the question is whether we are to provide a mechanism in the Bill that will prevent future Administrations using the budget as a constraint on the OBR. It is the most effective constraint of all because no one really notices it.

If we are going to secure the independence of the OBR in the Bill, we should take the position supported by the noble Lord, Lord Burns, and clearly by Mr Chote, who said, “I will be off to the committee”. Let us ensure that the committee has full information and powers to recognise the chairman of the OBR at an appropriate time, and to defend him. We are not talking about subvention or incentivisation. The incentivisation argument is false—it is the other way round—because, if the Treasury is incentivised, it is of course incentivised to stop the OBR doing things that it does not want it to do.

Let us think about the future of this organisation and ensure that it has the independence that we seek. I will return to the issue on Report, because it is important. I am most encouraged by the support of a former Permanent Secretary, who has identified this as an important issue.

[Lord Sassoon]

Since the noble Lord is coming to the end of his remarks, I wanted to put something into, if you like, his work plan for thinking more about this matter before Report. This is another point that I had thought hardly needed to be made. The grant-funded NDPB model which we are talking about is common to a great many credibly independent bodies such as the Advisory, Conciliation and Arbitration Service and the Equality and Human Rights Commission. I do not believe that there is any question of funding for other grant-funded bodies of this sort being compromised. They produce explanatory memoranda; the OBR can produce an explanatory memorandum, which will go to parliamentary committees for scrutiny. I simply put on the table that if the noble Lord wants to go on thinking about this, he should also consider the read-across to other NDPB models.

[Baroness Noakes]

Before the noble Lord, Lord Eatwell, takes this away to consider before he comes back on Report, he might want to look at the debates on setting up the Statistics Commission. Very similar points were raised at the time. Although it was a non-ministerial government department rather than an NDPB, the principles are exactly the same. When I sat on that side of the Grand Committee, the concerns were that insufficient resources would be made available to the Statistics Commission to enable it to do the work that it needed to do because it was to be subject to Treasury control.

One of the arguments, which I am not sure has been fully deployed, although many good arguments have been, is that the annual report required by Schedule 1 is the vehicle for the body—the Statistics Commission in that case, and the OBR in this case—to say exactly what it wants. The Treasury has no ability to stop anything being put in the annual report, which must be laid before Parliament. This is in addition to the undoubted ability of Robert Chote to get Mr Tyrie to obtain a Treasury examination if he thought there was a problem, which can be done by informal means. Therefore, Mr Chote has a formal means of bringing to the attention of the wider public any concerns that he has about funding.

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[Lord Higgins]

I presume that the Minister was seeking to be helpful to the Committee so that we should have it in advance of our discussion.

[Lord Sassoon]

The letter was intended to be helpful in advance of our discussion. It was sent around by e-mail earlier today, but noble Lords may not have seen it. I do not know who received it and I am not sure exactly what time it went out. Hard copies are available here in the Moses Room and it is now, or soon will be, on the Bill’s website. We tried to distribute it in as wide a way as we could.

[Lord Higgins]

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

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

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

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[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.

[Lord Higgins]

My Lords, we are in danger of getting involved in metaphysics rather than econometrics. The absolutely central thing in the Bill is that the main duty of the office is to examine and report on sustainability. To say, “Oh well, the OBR itself will decide what is meant by that” when it is in the Bill is not a satisfactory situation. We have to have some idea of what is meant by it.

As far as the individual is concerned, it is fairly clear: if your expenditure is more than your income, the position is not sustainable—except, of course, that you can delay the proceedings by borrowing and so on. The same is not totally untrue as far as the Government are concerned. In the light of the earlier clauses to which I referred, is the OBR going to say, “The way the Government are going will not work. Their fiscal objective”—in the simple terms I have just outlined for an individual——“is not sustainable”? The same would have been true if the OBR had been reporting earlier on the position of the Irish Government. It could have said, “This is not sustainable. You will either default, have to be bailed out—which may or may not be a sustainable position—get out of the euro, or whatever”. Is the OBR going to say, as perhaps it might have said to the previous Government, “What you are doing is not sustainable”?

We have taken the clear position as an incoming Government that what the previous Government were doing was not sustainable; in short, they were going to go bust unless they could continue borrowing enough to stay afloat. Is this what is meant by sustainability? It probably is but, if so, we at least need confirmation from the Government—not from the OBR—that it means, “You cannot go on doing this without various other consequences following”.

[Lord Sassoon]

My Lords, I tried to make clear in summary what the Government understand by “sustainability”. It encompasses the thinking of my noble friend, which is the bare minimum that anyone would understand by “sustainability”. I want to allow the OBR to interpret it further. The noble Lord, Lord Peston, shakes his head. I say it is the bare minimum but I want to give the OBR the freedom to interpret “sustainability” in as wide a way as it thinks appropriate. Of course the OBR can and should say that the public finances are not sustainable if it considers that to be the case. It has written on sustainability already and will do a lot more work. I do not want to constrain it with a government definition that people may criticise. Having said that, there is a need for further consideration to ascertain whether the matter of sustainability can be reflected in the charter. However, it should not be done in a way that lays down a government definition of it.

[Lord Higgins]

That is a very helpful reply, if I may say so, but we cannot go along with the main object of the whole thing not being more clearly defined. Could my noble friend discuss it with the OBR and, before Report, get some idea of the answer?

[Lord Sassoon]

My Lords, as I have said, I am happy to discuss it with the OBR again, but it clearly believes that this is a very difficult issue, which is why it has made some opening comments, if you like, on sustainability in both its June and its November documents. It will make it the subject of a self-standing report—I assume, a significant one—next year, which is in its programme. It has already said that sustainability in its full richness cannot and should not be rushed or reduced to a simple formula. It wants to lay its thinking out in detail, and we should allow it to do that.

[Lord Higgins]

I beg leave to withdraw the amendment, but as the noble Lord has kindly produced a letter on the earlier part, perhaps he might try, before Report, to produce a letter on this issue.

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[Lord Burns]

My Lords, I have been struggling with this debate. I have had difficulty in seeing where it was going. When I looked at the amendment of the noble Lord, Lord Eatwell, I thought, “Surely everyone assumes that that is the way that it will be done in any case”. In that sense, I am not sure what the amendment adds because I do not understand what the counterfactual position would be if the OBR tried to do an analysis of sustainability that was not in the light of the Government’s economic policy. To the extent that the amendment would clarify a situation if there were any real doubt about whether that would be the position, then I can see that it has merit.

I am not contradicting what the noble Lord says about how this should be done. I would expect the OBR to do it in that way, largely because I cannot see how it would do it in any other way; it would be rather limited. My assumption is that the response to this will be, “It isn’t necessary because everyone would assume that this was the way that it would be done”. I agree with everything that the noble Lord has said about how one would hope that this would be done; my only question is whether the amendment is necessary.

On the question of how far one wants to spell out the issue of sustainability, my preference would be to leave the OBR to give its own definition and present its own analysis. It would then be up to others to question whether it had done that correctly, whether it had missed out something in its definition of “sustainability” or whether the analysis was too narrow and should have been broadened. That could easily be a subject for debate after the OBR had presented its report, and no doubt it would then be taken into account when it made its next report.

If we follow much of the debate that has gone on, and if we are setting up something that we hope will last a long time, I am conscious of the fact that there are not many aspects of economic policy that remain unchanged for long periods of time. People’s interpretations of words and policies move over time. I would be cautious about trying to be too specific about what we mean by “sustainability”. In the broadest sense we understand what it means but, if circumstances were to arise that required a different definition or we had to assume that the Government would react in some way in future to certain types of events and that were to be built into the analysis, that could be done.

I find myself agreeing with the amendment, but I question whether it is necessary or whether it would not be assumed that what it suggests would already be the case.

[Lord Sassoon]

I am grateful to the noble Lord, Lord Burns. I think that he gets it right. I am sympathetic to the underlying concern of the noble Lord, Lord Eatwell, to try to solve a problem. The analysis of sustainability—the main duty of the office—has to have regard to, and be in the light of, the Government’s economic policy, so I do not think that there is any other way of doing it. Of course we must get the technical drafting right on this. In so far as there is any potential problem, we need to get it right.

I sometimes find the drafting of these things a bit obtuse, but I am advised by the experts on how these things are drafted that Clause 5(3) deals with the issue that the amendment is intended to remedy. That subsection states:

“Where any Government policies are relevant to the performance of that duty, the Office may not consider what the effect of any alternative policies would be”.

[Noble Lords]

Oh!

[Lord Sassoon]

It seems to deal with what should be excluded rather than what should be included. Due to the way that legislation is constructed, however, I am told that by referring to what should not be considered, the link to what should be considered is there by implication and hard-wired into Clause 5, which is the critical provision on how the main duty is to be performed. I am advised by the experts on these matters that we have in the Bill what is technically necessary to make the link through to the Government’s economic policy. Further to that, we have to be careful—this very much relates to the point made by the noble Lord, Lord Burns—because there are a lot of other matters in here that may come and go, to which the main duty of must have regard. Yes, it relates to economic policy, but what about the Government’s taxation and expenditure policies? What about the potential for the impact of external shocks? There is a danger here that if we agreed to the amendment, it would boilerplate the importance of the duty being carried out,

“in the light of the Government’s economic policy”.

I agree with the noble Lord, Lord Burns; how could it be any other way?

[Lord Burns]

I had assumed that the term “economic policy” encompassed all of the things that the Minister has just mentioned—taxation policy, expenditure policy, pensions policy or anything that would affect the public finances in one way or another.

[Lord Sassoon]

Again, I am advised that the drafting of the amendment would not necessarily achieve that end. If we include “in the light of economic policies”, even if it was widely interpreted, does that mean we should refer also to other aspects of sustainability, such as, for example, the impact of external shocks? I believe that the subsection works, even as drafted. We absolutely agree with both noble Lords in terms of what we expect to be taken into account, but we do not consider that the amendment will help. Its drafting does not do the trick and, I am advised, aims at something which is not necessary because we have it in Clause 5(3).

[Lord Higgins]

I have, in fact, tabled an amendment to Clause 5(3)—Amendment 30, which we shall come to in due course. However, long experience in these matters suggests that occasionally when one is discussing a Bill, it becomes apparent at what stage the parliamentary draftsman had a nervous breakdown. If the advice given by the parliamentary draftsman is that in some way Clause 5(3) is helpful in defining the point that we are discussing, I find that very surprising.

--- Later in debate ---

[Lord Higgins]

My Lords, Clause 5(3) on page 3 of the Bill is the subject of Amendment 30. However, I entirely agree with what the noble Lord said a moment ago: one cannot conceivably construe that subsection as in some way qualifying the issue that we are now debating. If that is the advice that my noble friend is getting from the parliamentary draftsmen, who of course are paid far more than anyone else in the Civil Service, it is an extraordinary answer.

[Lord Sassoon]

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

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

[Lord Newby]

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

--- Later in debate ---

[Lord Burns]

There is an issue with the drafting of Clause 5 and I wonder whether we are trying to make subsection (3) work too hard for its living. I had assumed that it was there to make sure that the OBR did not get dragged into a political debate and would not be called upon by anyone to cost opposition policies—which, as we know, has become a bit of a habit over the past 25 years—or by a Select Committee to insist that it compared the outcome of the Government’s policies with that of another set of policies. That would inevitably draw the OBR into a political debate. I had assumed that that was the purpose of this subsection, and it may be working it too hard to say that it should also do the job suggested by the noble Lord, Lord Eatwell. I think that the noble Lord, Lord Newby, has captured the spirit of what a number of us have been concerned about.

[Lord Sassoon]

We are all trying to get to the same end. I do not think that this is a rerun of what we were talking about under Clause 1 on the charter for budget responsibility. If it were, I would not carry on with a sympathetic tone. If it is trying to reopen—

[Noble Lords]

Oh!

[Lord Sassoon]

Do not push me, because I can sit down now. All the notes say “Resist”, but there is “resist” with a smiling face and there is another kind. If this discussion is intended to reopen the debate around Clause 1, which would have the effect of getting the OBR into the business of commenting on government economic policy and conceivably alternative economic policies, then I am not going to suggest looking at clarifying the drafting to achieve that. My starting point, like that of the noble Lord, Lord Burns, is that it would not be possible to carry out the measure set out in Clause 4(1). How could you conceivably do that if it were not based on the Government’s economic policies as widely defined, including thinking about the potential for external shocks and so on? The very important point is that Clause 5(3) stipulates that the context is only one of government policies, not alternative versions. Therefore, when the OBR carries out its analysis, it should look at only the government policies that have been announced.

[Lord Higgins]

I am trying to be helpful; this is clearly rather more complicated than we may have thought a little time ago. Could my noble friend simply say that he will look to see whether the intention of the Government has been encapsulated by the draftsmen and that, if not, he will table a more suitable amendment, because I do not think that we can leave it as it is?

[Lord Sassoon]

I was going to make two points. There is a further important consideration here, which is that we have the draft charter in front of us. It is worth bearing in mind that paragraph 4.12 of the draft charter, at page 13, states:

“The OBR’s published forecasts shall be based on all Government decisions and all other circumstances that may have a material impact on the fiscal outlook”.

So it is quite clear from that paragraph that the published forecasts shall be based on all government decisions. It continues, in the first bullet point, or tiret, as the Treasury used to call it—I do not know whether it still does since the departure of the noble Lord, Lord Burns; I fear that it now calls them “bullets”. Anyway, in the first blob—

[Lord Eatwell]

Standards are falling.

[Lord Sassoon]

They are slipping terribly. In paragraph 4.12, the first bullet point states,

“where the fiscal impact of these decisions and circumstances can be quantified with reasonable accuracy the impact should be included in the published projections”.

So we have in the charter a lot of the clarification, if there is any doubt to be avoided. I think that we have exposed all the issues here. I believe that between the two clauses and the charter, we have covered it all. I will look at the issue again in the cold light of day with officials. If, on reflection, there is anything more, I will write with further thoughts, but in the mean time, I ask the noble Lord to withdraw the amendment.

[Lord Eatwell]

I am grateful to the noble Lord. This debate has been much more valuable than I expected when we started. We discovered in the imperfect drafting of Clause 5(3) a real drafting difficulty, which has nothing to do with trying to make any political or more general economic point, but just concerns clarity. That was very valuable. I want to return to this, and want to associate with the notion of sustainability a general notion of economic policy. The reason for that is illustrated by the Irish case. The Irish Government looked incredibly stable in 2007, yet the overall economic position was completely unsustainable. If you just looked narrowly at the government finances, they looked terrific, but once you placed those government finances in the context of what was happening in the financial sector in Ireland as a whole, taking into account the Government’s economic policy with respect to the banks, for example, you would have seen that the position was unsustainable. It is that broader context that I was trying to get at here, and which informed my remarks on the sustainability analysis in the report published on Monday. We have teased out some important issues here, and we must certainly return to them on Report but, in the mean time, I beg leave to withdraw the amendment.

Autumn Forecast

Lord Sassoon Excerpts

Monday 29th November 2010 Lords Chamber

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

My Lords, with the leave of the House, I should like to repeat a Statement made by my right honourable friend the Chancellor of the Exchequer in another place. The Statement is as follows.

“I would like to make a Statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would also like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.

First, on the OBR’s autumn forecast—copies of which were made available in the Vote Office earlier today—we should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast that has been produced by the independent Office for Budget Responsibility—rather than conjured up by the Chancellor of the Exchequer—and made available to read two hours before the Statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the Budget Responsibility Committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Select Committee members from both sides of this House. The country can have full confidence in the independence of these members.

The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency—much of which is of the kind that was available to previous Governments but never published. I would like to thank the Budget Responsibility Committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we will now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament. While today’s figures are, of course, independent, they are still just forecasts and we must treat them with the degree of caution with which one should treat any forecast. Indeed, the OBR is explicit about that. The report illustrates the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. Indeed, the only thing that was infallible and certain was that those political forecasts were wrong.

With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing; more jobs are being created; and the deficit is falling. The OBR’s central forecast is for sustainable growth of more than 2 per cent for each of the next five years, with employment rising in each and every year. At a time when markets are gripped by fears about government finances across Europe, today we see that the Government were absolutely right to take the decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and to balance the books—something that some people repeatedly said would not happen.

Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I would also like to point out that they are very similar to the European Commission forecast for the UK, which is also published today. They forecast that Britain will grow faster over the next two years than Germany, France, Japan and the United States of America as well as faster than the average for the eurozone and the EU. The OBR forecasts real GDP growth of 1.8 per cent this year, 2.1 per cent next year, 2.6 per cent in 2012, 2.9 per cent the year after that, 2.8 per cent in 2014 and 2.7 per cent in 2015.

Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of this improvement is likely to be permanent and some of it a temporary impact of stock building. As a result, the OBR forecasts that the rate of growth next year will be 0.2 percentage points below the forecast that the OBR made in June. The OBR also predicts above-trend growth for the four years after that. The level of GDP, or the overall size of our economy, is forecast to be around half a percentage point higher next year than was forecast in June and, indeed, higher throughout the whole forecast period.

Some have made predictions of a so-called ‘double-dip’ recession. While the OBR points out that,

“growth has been volatile as this is a common characteristic of post recession recoveries”,

its central view is that there will be no double-dip recession. Its forecast is for growth next year of more than 2 per cent, and it expects that the slowest quarter of growth, in the first quarter of next year, will be 0.3 per cent, rising back up to 0.7 per cent by the last quarter of next year. The OBR also forecasts that CPI inflation will fall from 3.2 per cent in 2010 to 1.9 per cent in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.

Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to an economy where we invest and export—again, something that some people said would not happen. The OBR expects more demand to come from business investment, which is set to grow by more than 8 per cent for each of the next four years, as well as from exports, which are expected to grow on average by more than 6 per cent per year. This new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficits. We will thus bring to an end the unsustainable situation that saw families save less and less year after year so that they ended up, in the words of the OBR report today,

“effectively borrowing money to purchase increasingly expensive houses”.

The OBR has also published today a full forecast for the labour market—something that, I point out, previous Chancellors chose not to publish. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29.0 million to 30.1 million—that is more than 1 million additional new jobs. On unemployment, thanks to faster than expected growth in the economy, the OBR now expects the rate to be slightly lower this year, at 7.9 per cent instead of 8.1 per cent. Its forecast for the unemployment rate for next year is unchanged from the June Budget, at 8 per cent. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that unemployment will fall to just above 6 per cent—that is about half a million fewer unemployed people than at the beginning of this Parliament.

The trend in the claimant count is similar to that for the internationally recognised Labour Force Survey measure of unemployment, but the level is expected to be higher. The OBR explains that this revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance as a result of the new work capability assessment are modelled. In other words, more people are assumed to be flowing off ESA and on to JSA. This is a key part of our reforms to create a welfare system that encourages people to seek work and to reduce costs for the taxpayer—in short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year fewer people are expected to be on both those out-of-work benefits combined than in the June forecast.

I can also tell the House that, following the spending review, the OBR has now recalculated its estimate of the reduction in headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years. In its latest forecast, the estimate has come down to 330,000, which is a reduction of 160,000. The bulk of the revision results from the action that we have taken to cut welfare bills rather than to cut public services. Our difficult choices on child benefit, housing benefit and other benefits—each of which were opposed by the party opposite—mean fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight. The OBR also forecasts that private sector job creation will far outweigh the reduction in public sector employment. As the report says,

“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s when total employment increased by 1.3 million over six years while general government employment fell by around half a million”.

However, the most important point is that the lesson of what is happening all around us in Europe is that, unless we deal decisively with the record budget deficit, many thousands more jobs will be at risk in both the private sector and the public sector. Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than we forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70 per cent in 2013-14 and then fall to 67 per cent by 2015-16. The debt ratio is now expected to peak at a lower point compared to June—at just below 70 per cent instead of just above it.

On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,

“The Government has a slightly wider margin for error in meeting the mandate than appeared likely in June”.

For the first time, the OBR has also tested the resilience of the fiscal mandate to two alternative scenarios for the economy that critics have put forward. In both cases the mandate is met. It is clear that our decisive actions have proved to the world that Britain can live within her means. This Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment of not only the OBR but the IMF, the OECD, the European Commission, the Bank of England and all the major business organisations in this country.

Already our efforts are paying off. Today’s forecast shows that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. That is £19 billion that would have been wasted and will be saved instead.

This is an uncertain world, but the British recovery is on track. Employment is growing; 1 million more jobs are being created; and the deficit is set to fall. The plan is working, so we will stick to the course. This is the only way to help confidence to flourish and growth to return. I urge those who, when they see what is happening to our neighbours, seriously suggest that I should abandon the decisive plan that we are following and borrow more and spend more, to think again. What they propose would be disastrous for the British economy. It would put us back in the international firing line from which we have worked so hard to escape. It would mean higher deficits and jobs lost. We should reject that path.

Stability is a necessary pre-condition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade and that has undermined its ability to create jobs and grow. That is why we have already announced: four annual reductions in corporation tax; axing the jobs tax; cutting the small companies rate; expanding the loans scheme; simplifying health and safety laws; investing in science and apprenticeships; and promoting exports through trade missions.

Let me set out some of the other things that my right honourable friend the Business Secretary and I are announcing today to support growth and a rebalancing of our economy. At the Budget, I set out a plan to reduce the main rate of corporation tax to 24 per cent—its lowest ever rate—to demonstrate our commitment to tax competitiveness. I can now tell the House that the most significant programme of corporate tax reforms for a generation are today being published for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming our outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies that have left the UK in recent years. This Government, unlike the previous Government, are not content to sit by and watch our competitiveness leach away and our corporate tax base being undermined.

Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and to develop new products in this country. To encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10 per cent corporate tax rate on profits from newly commercialised patents.

We have been consulting with the business community, and I can tell the House that, as a result of that measure, GlaxoSmithKline will today announce: a new £500 million investment programme in the UK to manufacture a newly developed respiratory device at Ware in Hertfordshire; the launch of a new £50 million venture capital fund to invest in healthcare research; the construction of a new facility at the University of Nottingham to develop “green chemistry” technology; and the building of Glaxo’s next biopharmaceutical plant in this country, with sites in Northern England and Scotland being considered. In total, GlaxoSmithKline estimates that 1,000 new jobs will be created in the UK over the lifetime of those projects.

Today, we also launch a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support new growth opportunities. Too often the natural inclination of Governments is in the opposite direction: creating new regulations; putting up new barriers; and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Business Department, the Treasury will lead an intensive programme of work that will involve all parts of Government and use evidence provided by the business community and that will report by next year’s Budget. We will identify cross-cutting reform priorities that can benefit the whole economy. Specific priority will be given to: improvements to the planning system and employment law; more support for exporters and inward investors; and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will in very specific ways help particular industries. Some may be controversial if they confront vested interests. However, brick by brick, we will remove the barriers that are holding Britain back.

Finally, Mr Speaker, I would like to update the House on the international assistance package for Ireland. I attended the Europeans meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which,

“is warranted to safeguard financial stability in the euro area and the EU as a whole”.

Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation, and €50 billion will be used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism and one third from bilateral loans and the eurozone facility. The terms of the IMF loan will be determined over the coming weeks.

In principle, our bilateral loan is for £3.25 billion and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. This loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage through these difficult conditions. I should also tell the House that the eurozone Finance Ministers—without me present—discussed a permanent financial stability facility. I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism and that the European financial stability mechanism, agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.

Mr Speaker, when we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control and our country on the international watch-list to avoid. We took decisive action. Now the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, a million jobs are set to be created and our economy is rebalancing. Today we take further measures to secure growth and create prosperity. We do so based on the foundation of stability that we have now secured. Britain is on the mend. I commend this Statement to the House.”

--- Later in debate ---

[Lord Sassoon]

My Lords, it is always depressing to come back to face the noble Lord, Lord Eatwell, with his perpetual attempts to talk down the prospects of the economy. We have always said that the recovery is going to be gradual. It is on track. The recovery and the economy are borne down because they have to bear the legacy of the unbalanced growth and the excessive debt that was left behind by the previous Government. The noble Lord does not look forward; he is not grateful for the fact that the OBR has confirmed in its independent forecast that we have a pattern of rising employment in each year of the forecast. Instead, he continually wants to chip away at techie points around the way that the forecast has been produced. The transparency and the information have been vastly increased—and he chips away at it. Well, fine.

I am grateful that the noble Lord welcomes, as we all do, the £500 million new investment announced today, and I am sure that there will be a lot more to come. I was up in the north-west of England on Friday talking to a great sweep of businesses from some of the largest multinationals, like Siemens, through to very regional businesses like the Blackpool leisure centre, to family businesses such as the business that puts together Chevron motor cars. I do not recognise the picture that the noble Lord paints. These businesses are looking to the future. They recognise that there is a lot of rebalancing of the economy to do, but they are producing world-class science; the Daresbury science and innovation centre is one of the world’s great leaders. It was thanks to the foresight of the noble Lord, Lord Sainsbury, under the previous Government, that that project got going. The current Government have just announced a public-private partnership to take forward that project for the next 20 years, creating, on that one science park alone, 6,000 jobs. This is the view of Britain that I see when I get out and about, and which seems to be in no way reflected in the technical analysis of the noble Lord and some of his friends opposite.

The noble Lord talks about the fan charts. Well, we have not had the fan charts before; we now have them. He can do the analysis; he can see that the OBR has produced upside and downside scenarios. As I have said, the different scenarios that were suggested to the OBR—not its own scenarios—show that under them the fiscal mandate will be met. Yes, we have taken radical steps on welfare reform. Yes, it is correct that, by doing what we did to take more people out of welfare, we have been able to protect many more front-line public service jobs. That welfare reform is not about anything other than protecting the poor and getting a fair deal for this country. We must have a welfare system in which families who choose to go out to work are able to earn and retain more than families who choose to live on benefits. We must have a system in which housing benefit is designed so that families who go out to work are not penalised in their housing choices, compared to families who are not working.

The noble Lord talked about cuts in investment. As he may remember, when we discussed the spending review only a few weeks ago, we increased the amount of money going into public sector investment in economically enhancing infrastructure by more than £2 billion a year through the spending review period, compared to what was in the Budget and what we inherited from the previous Government. I am grateful for the work of the OBR in producing this forecast. It confirms that the judgments that my right honourable friend the Chancellor made are absolutely right. In the 2011 Budget we will update on our progress.

[Lord Higgins]

My Lords, can my noble friend confirm the rather surprising and welcome news that, despite all the cuts in public expenditure and the tax increases, growth is none the less expected to continue in the coming years, and that, similarly, unemployment is expected to fall? Having said that, I raise the position with regard to Ireland. Many people in this House believed that it was right to make Ireland a special case, but can we be sure that it is a special case and we will not find ourselves bailing out other eurozone countries to prevent their defaulting? Is it not the case that the Irish, having been bailed out, would be better able to achieve economic growth in the future if they were no longer in the euro? The reality is that the euro was designed to prevent members leaving by eliminating their own currencies. However, we need to provide some form of escape route for those countries—not only Ireland but the others on the periphery—that continue to suffer because they have an inappropriate exchange rate. Perhaps some form of alternative currency, to be used when a country wishes to withdraw, ought to be provided.

[Lord Sassoon]

I am grateful to my noble friend for pointing out that growth is expected by the OBR to continue to be above 2 per cent in every year of the forecast from next year onwards. I am happy to confirm this. Indeed, the OBR forecasts that employment will rise and unemployment will fall throughout the period.

In respect of Ireland and the eurozone, I can confirm that the UK will not be part of the permanent bail-out mechanism that the eurozone will put in place. Having said that, I do not wish to speculate about the future of the eurozone, which is very important to the UK. Europe accounts for 40 per cent of our trade and it is in the interests of this country to do what it can to support the stability of the eurozone. That does not mean that, with the exception of Ireland and its particular circumstances, we will directly support any bail-out operation.

[Lord Soley]

The noble Lord might consider recommending to the Chancellor of the Exchequer that this Statement be submitted for the Booker Prize for creative literature. It really is rather strange. In repeating the Statement, the Minister said that some people said that these growth figures would not happen. That is not true. They said that they would happen as long as we did not cut too deeply or too fast. That is what the previous Government said. The growth figures in the first seven months of this Government are down to the previous Government’s policies and the general policies within industry. The Minister might care to remember—as I pointed out a number of times when I was sat on that side of the House—that British manufacturing output was growing and that we were the sixth largest manufacturing country in the world. At the same time, French manufacturing was in decline. At the same time, President Sarkozy has expressed concern that the French might have trouble with their triple A rating.

It is also not true to say that this is the largest deficit in peacetime history. Simply typing “history of the national debt” into any search engine, or going to the library, will tell him that national debt in peacetime, as a percentage of GDP, was significantly higher through most of the 19th century—it was the way we financed the Empire—and much of the 20th century. Indeed, it was only the previous Labour Government who paid off the final debt from the Napoleonic wars and the Second World War. Can the Minister now tell us why he thinks that cutting faster and deeper in the coming year will help when we are already recovering? In a year’s time he will not be able to carry on the political, or party propaganda, line that somehow or other in seven months the Government have turned it round. They have not. That was already happening. What matters is the next 12 months.

[Lord Sassoon]

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

[Lord Newby]

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

[Lord Sassoon]

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

[Lord Turnbull]

Can the Minister explain how the results of the main findings of this report were extensively reported in the press over the weekend and indeed this morning? It says on page two that the Treasury was given the final version 24 hours in advance. It leaves the rather worrying conclusion that perhaps that process, which was brought about by the creation of the Statistics Commission, has not proved as watertight as we might have hoped.

[Lord Sassoon]

I, indeed, read some of the newspapers over the weekend with interest, but the forecasts have been handed over exactly in the way that the OBR suggested. My reading of the press was that they were making educated guesses because the forecasts of the OBR in respect of this year and next year have moved much in line with market forecasts. The press are always bound to speculate in contexts such as this one. Indeed, that is what they were doing.

[Lord Campbell-Savours]

My Lords, what did the noble Lord mean when he said “in principle” in regard to the question of the noble Lord, Lord Eatwell, which he did not answer?

[Lord Sassoon]

My Lords, forgive me but which of the questions of the noble Lord, Lord Eatwell, are we talking about?

[Lord Eatwell]

It was the point about assistance to Ireland—I believe that the relevant figure is £3.25 billion—being preceded by the words “in principle”; that it would be that sum in principle.

[Lord Sassoon]

My Lords, forgive me, I should have pointed out that the details of the package are still subject to final negotiation. I guess that the lawyers have to trawl over the press release, as it were, and my right honourable friend’s statement that the loan is not the loan until it is absolutely bolted down in the formal documentation. The terms of the loan are still subject to final negotiation alongside the IMF and eurozone packages.

[Lord Naseby]

Is my noble friend aware that listening to the noble Lord, Lord Eatwell, reminds me of Cambridge in November—rather dour and foggy with not much light being shown on the country’s economic situation? Is it not a fact that, since the general election, the United Kingdom’s long-term interest rates have been falling every month and that prior to that period they were going up every month?

[Lord Sassoon]

I am grateful to my noble friend for pointing out the changed direction of travel since the new Government came in. I do not want to wade into a Cambridge argument. As a mere Oxford man, I always found my economics professors rather more cheery in their outlook, but perhaps my memory is clouded.

[Lord Deben]

Will my noble friend not allow the noble Lord, Lord Eatwell, to get away with the idea that this year is Labour’s year? The fundamental change is that we have confidence; under them, we would not have had confidence. We would not have been able to pay our bills and we would have found ourselves in much the same position as Ireland.

[Lord Sassoon]

I am very grateful to my noble friend; his analysis is absolutely right.

[Lord Myners]

My Lords, I welcome the establishment of the Office for Budget Responsibility and the independent committee. That is a significant step forward and one on which the noble Lord and the Government should be congratulated. However, we can see a contrast between a thoughtful, objective, fact-based analysis from the committee of the OBR and the spin that was placed on it by the Chancellor of the Exchequer. That is a very good and valid reason why the OBR should be invited to ensure that its own conclusions are presented to Parliament in an accurate, unbiased and objective way rather than as we have seen today.

It is disappointing to see that, even at the end of the five-year period, the output gap will still remain substantial—that is, we will still have significant unused capacity in the economy. Will the noble Lord confirm that the noble Lord, Lord Eatwell, is correct in his analysis that an improvement in the balance of payments and a decline in public sector borrowing will inevitably be associated with a significant increase in private sector debt? Is that an assumption which the Government accept and support? Can the noble Lord tell us whether the rate of interest paid by Ireland will be higher or lower than that assumed to be paid by the Government of Iceland?

[Lord Sassoon]

My Lords, it is always good to have the noble Lord, Lord Myners, present. I do not suppose that his Government ever applied any spin to any numbers. He shakes his head. Oh, well. All our memories are failing. Seriously, the difference this time is that we have a much greater, more transparent analysis of the numbers—over 150 pages of numbers. I am grateful to him for welcoming the formation of the Office for Budget Responsibility, and I hope he will be with me, giving it a fair wind in Committee on the Bill shortly.

There is a serious point here. Not only are there 150 pages of analysis and a lot more detail than was ever given before, and not only has that been available a couple of hours before my right honourable friend’s Statement, but we will be able to pick over it in the next few weeks. The OBR itself will come to the Treasury Select Committee and answer questions there and all sorts of other questions in different fora.

As to his specific question on the output gap, yes the numbers show that it will be 0.9 per cent in 2015, down from 3.3 or 3.4 per cent as it is now and from 4.2 per cent as it got to in 2009. As to the levels of private sector debt, I do not accept the numbers given by the noble Lord, Lord Eatwell; I accept the numbers that are in the OBR’s document. There will be a total leverage in the economy that is very far down on the over-leverage with which the previous Government left us.

[Lord Hamilton of Epsom]

Does my noble friend the Minister accept that one of the critical things that it was important for the coalition Government to do was to reassure the financial markets that we had a handle on the whole question of the deficit which we had inherited? That is one of the reasons—my noble friend mentioned this—why interest rates have come down since the coalition Government took over and since the new Budget was announced, and one of the reasons why the interest burden is going to be much less over the coming years.

However, is it not rather depressing that the noble Lord, Lord Eatwell, still goes on about the possibility of a double-dip recession when it is quite clear from these forecasts that the chances of that are almost nil?

[Lord Sassoon]

I am very grateful to my noble friend. I absolutely share his view both on the depressing scenarios that the Opposition choose to paint and on the overall scenario for solid growth which the OBR confirms.

As to the judgment of the financial markets, I have looked at this morning’s numbers, and the UK spread over the German 10-year Bund has gone down from 96 basis points at the date of the general election to 60 basis points today, which is a very significant measure of confidence by the international markets in our consolidation plan.

[Lord Ryder of Wensum]

My Lords, in welcoming the Statement, I declare an interest as the chairman of the Institute of Cancer Research. Is my noble friend aware that, in exports, the pharmaceutical sector is by far the most successful sector in this country? It contributes between £3 billion and £4 billion a year in surplus to our balance of trade. If, as seems likely, the Government’s new immigration policy prevents the pharmaceutical industry and research organisations such as my own from attracting the brightest and the best to this country under tier 1 and tier 2, will the Minister give me a clear undertaking, in the interests of the economic growth to which he referred, that the Chancellor of the Exchequer will have a quiet word with the Home Secretary to persuade her to change her policy as it stands at present?

[Lord Sassoon]

I am grateful to my noble friend for pointing out the huge success of the pharmaceutical and biopharmaceutical industry in this country. That is why it is so welcome to have the news today that GlaxoSmithKline is putting further facilities into this country that will only enhance the position of the United Kingdom in that critically growing sector of the economy. I am sure that the pharmaceutical companies fully recognise that, in the announcement made last week by my right honourable friend the Home Secretary, intra-company transfers of employees were taken out of the immigration cap. That means that skilled employees of multinational companies can be brought freely into this country, and for those earning more than £40,000 there will be no time limit on the length of time they remain in this country. My right honourable friend is very aware of, and has recognised, the importance of skilled industrialists and others being able to get employment in our growing industries.

[Lord Brooke of Sutton Mandeville]

My Lords, while enjoying the historical intervention of the noble Lord, Lord Soley, does my noble friend recall the remark of the Leader of the House in the wind-up to the Queen's Speech debate of 1951 when he said that all incoming Governments find skeletons in the closet, but his Government had found them swinging from the chandeliers? Secondly, does he recall the conduct of Mr Butler's economic policy between 1951 and 1955? Finally, does he remember that at the 1955 general election the Conservatives tripled their majority?

[Lord Sassoon]

Well, I have now been reminded. I was not quite around at the time, but I am very grateful to my noble friend for reminding us of these important lessons of history.

[Lord Liddle]

My Lords, does the noble Lord agree that, while any progress in rebalancing the economy is welcome, and while it is heartening to hear that the forecast for public sector job losses is lower than it was, this is contradicted by the Local Government Association, which forecasts an increase in job losses as a result of the impact of the spending round on local government? Does he not also accept that many of us on this side of the House are worried about these job losses—about their impact on regions that are heavily dependent on the public sector and about their impact on young people? Already, there are worrying signs of a rise in unemployment and inactivity among the young. Is it not disappointing that the Statement does not contain any policies that are likely to address these problems?

[Lord Sassoon]

My Lords, I would rather stick by the forecast of the independent Office for Budget Responsibility than the forecasts of others. It is the OBR forecast that is important and central today. Of course it is regrettable that any number of public sector workers—or indeed people in any other part of the economy—will lose their jobs. However, because of the numbers—much reduced in the latest forecasts—of public sector workers who will lose their jobs, not overnight but over the next four or five years, interventions that we have already announced, such as the £1.4 billion regional growth fund, are so important. We have targeted support very much at the regions to make sure that the transition between employment in the slightly shrinking public sector and employment in the strongly growing private sector is as smooth as possible.

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Monday 29th November 2010 Grand Committee

[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.

--- Later in debate ---

[Lord Newby]

Just as a point of clarification for the noble Lord, Lord Eatwell, Clause 1(7) states:

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

so it has at least vestigial parliamentary scrutiny.

[Lord Sassoon]

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

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

[Lord Eatwell]

That was the point that I was trying to make in a speech that I made in the House the other day. If there is a deficit and you are paying interest on that deficit, it sounds like a burden, but you are paying it to the people who lent you the money and they are predominantly other British citizens, so all that you are doing is transferring part of national product from one lot of British citizens—the taxpayers—to another lot of British citizens, the lenders. You are not actually creating an intergenerational transfer. An intergenerational transfer can be made, as the noble Lord, Lord Higgins, pointed out quite accurately, by changing the volume of investment in any one year, which changes the growth rate of the economy and affects future income per head. A fiscal measure alone is not an intergenerational transfer.

[Lord Sassoon]

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

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

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

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

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

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

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

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

[Lord Myners]

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

--- Later in debate ---

[Lord Sassoon]

My Lords, we could add an awful lot of not directly relevant things into the charter and make a document of biblical proportions that discusses all sorts of things. The charter, unlike the previous Government’s code, explicitly sets out the Government’s fiscal policy objectives, so we have moved on. However, there is no point in moving on to all sorts of things that do not need to be in there, which is what the noble Lord, Lord Myners, suggests. Yes, we have moved on. The charter explicitly includes the Government’s means to achieve the fiscal objectives and the fiscal mandate. The coalition’s programme for government made it clear that accelerating the reduction of the deficit to ensure recovery was the greatest challenge. That all links through to the policy actions that we have taken. Through the creation of the independent Office for Budget Responsibility, credibility has been restored to the forecasts on which fiscal policy is based. I think that it is that that we all broadly welcomed at Second Reading and we must not lose sight of ensuring that the linkage between the Bill and the charter is focused on that single, critical objective.

The charter is a fiscal policy document, which helps to deliver the Government’s economic policy. To deliver the economic policy objective, the Government employ a wide range of macroeconomic and microeconomic policy tools and frameworks and, for those reasons, I believe that the amendments are not appropriate. The charter is not the Government’s economic policy framework but a document to underpin the work of the OBR, and that is all that it is proper to be. On that basis, I hope that noble Lords will withdraw the amendment and not press Amendments 2 and 3.

Amendment 4 is similar in nature to the other three amendments in that it concerns the fiscal mandate, which is the means for achieving the fiscal objectives. It is the Government’s quantified and specific target or fiscal rule, which will help to steer fiscal policy over the medium term. In setting a specific target, the mandate steers policy towards achieving the more general and strategic objectives that the Government have set for fiscal policy. The amendment suggests that the fiscal mandate is the key means of achieving the Government’s economic objectives. That is not the case. The ambitious and appropriate fiscal mandate that the Chancellor has set is crucial to delivering our fiscal objectives as a Government, but a much wider suite of economic policies, as I have explained, contributes to the Government’s economic objectives.

As I mentioned, the monetary policy framework, financial stability policy and microeconomic policy all contribute to the Government’s economic objectives. It is correct that the Government create an economic policy environment where all policy frameworks and tools contribute to their economic policy objective, yet the fiscal mandate should remain a fiscal target in a statutory fiscal charter and we should not stray from that.

There are a couple of other points that it is perhaps worth touching on before I conclude. On sustainability, the OBR will bring forward a sustainability analysis next summer, which will include,

“long-term projections for the public finances and an assessment of the public sector balance sheet”.

My noble friend Lord Higgins raised a question on that. It is referred to in paragraph 4.15 of the charter, so sustainability and the question of a balance sheet are absolutely in the work programme. Having explained the whole context for the charter within the overall fiscal framework, I hope that noble Lords will see fit not to press the amendments.

--- Later in debate ---

[Lord Oakeshott of Seagrove Bay]

My Lords, I listened at considerable length to the Minister reading out his brief in response to the amendments but I wondered whether, by any chance, he could do me the courtesy of answering my question, which I thought was fairly simple and clear. Why are we having just the word “intergenerational” with fairness? He has said that he does not want a Bible. I am suggesting that he might make it shorter, but why “intergenerational”? Why not any other sort of fairness? The document says that these are:

“The Treasury’s objectives for fiscal policy”.

This is a government document, so could the Minister please address the question that I raised?

[Lord Sassoon]

I was not meaning to be at all discourteous to my noble friend. I thought that I had explained that a lot of things could be set out in a full description of the policy frameworks but that the objective is to have a short encapsulation of fiscal policy objectives as a background to the specific mandate for fiscal policy. As I also said, this is of course a draft charter. I am listening to that and other comments that are being made on the charter. I absolutely confirm that. I fully understand that there are other aspects of fairness; indeed, I read out another formulation of the coalition policy approach to broader economic policy-making, so I am absolutely listening to my noble friend’s point. Fairness, without any specific reference to “intergenerational” or any other kind, is indeed central to the economic policy objectives of the coalition Government.

[Lord Oakeshott of Seagrove Bay]

I am glad that we are starting to get the matter addressed, but this is Committee stage and it is no good, if I may say so, taking a Civil Service attitude of, “We’ll think about anything that comes in”. This is Committee stage. I have made a proposal and suggested the document should be shorter, not longer. I know that it is a draft. I have said that, if the Minister cannot explain why intergenerational is the one bit of fairness that is picked out, why not leave out “intergenerational” and just say “fairness”? Could we actually engage here, please? What is the answer?

[Lord Higgins]

Before my noble friend replies to that, perhaps I may delay the Committee for a moment or two more. First, I apologise to the noble Lord, Lord Eatwell. His reference in the amendment to the lines in the Bill is correct. I was working on the original version of the Bill, which the Treasury has subsequently corrected. I just hope that the Public Bill Office has sorted out all my numbering; otherwise, I will have a lot of work ahead of me.

We should be extremely grateful to the Minister for providing the draft charter; otherwise, we would be relying purely on what is in the Bill, which leaves a large number of questions unanswered. Perhaps I may pursue the point raised by the Minister with regard to the fiscal mandate. There is no initial capital letter in “mandate” in the draft charter, which perhaps there should be. It states that the mandate is,

“a forward-looking target to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period”.

That is an extremely important statement. My problem is that there are shades of Gordon Brown, rather like Banquo’s ghost, in the reference to “cyclically-adjusted”, because Gordon Brown was a master at changing the dates of when the cycle began. If the mandate is to mean anything at all, we need to know when the Government think that the cycle began. If my noble friend cannot answer now, perhaps he might come back to it later.

[Lord Sassoon]

My Lords, at the risk of repeating myself, the Government’s broader economic policy objective is clear and includes the achievement of strong, sustainable and balanced growth that is more evenly shared across the country and between industries. That is consistent with values of broad freedom, fairness and responsibility. That is absolutely clear, I hope, as regards our broader economic policy objectives. However, as I have tried to explain, what we are talking about is the narrower context for the fiscal policy mandate. I am not personally very keen on too many capitalised terms, but I hear my noble friend’s plea for an initial capital for “mandate”—it is certainly a critically important part of the construct. I will take away the thought.

This is the first time that these fiscal policy objectives have been tabled. We are not debating the charter in the way that we are debating the Bill, because the charter is not part of the Bill itself. It is not a question of debating the precise words, therefore, but I take the point. There are many things within the broader definition of fairness that do not impinge directly and narrowly on the conduct of fiscal policy. Therefore, I am not sure that it would be right to talk about fairness in its full richness here, but I have certainly listened carefully.

As to the question of cyclical adjustment, the absolutely critical point is that cyclical adjustment is now done by the independent OBR; it is not done by Ministers, who could and did rewrite, on a regular basis, the start and end points of cycles. That is important and I am grateful to my noble friend for drawing attention to it.

[Baroness Noakes]

My Lords—

--- Later in debate ---

[Lord Sassoon]

First of all, of course I take everything that is being raised this afternoon extremely seriously, but it would not be helpful to the Committee if I said, in some sort of Panglossian way and in approving terms, that I was equally sympathetic to all the points that were being raised. Points will be raised in this Committee to which I shall be more or less sympathetic and I shall try to give some indication of that, because I do not think that it is helpful to the Committee’s consideration, or to noble Lords at Report, if I just give an equally sympathetic ear to all points regardless of whether I believe that they have merit.

I am sorry that I failed to get across the key simplicities of where we are on Clause 1 and the proposed amendments, but the Bill’s purpose, which has been widely recognised, is to bring a new degree of independence to the construction of the forecast and to the establishment of whether the Government are likely to meet their fiscal policy mandate. Those are huge advances on where we have come from and the Bill is very much focused on that. Clause 1 and the linkage to the charter are all about that.

This Government have many other transparency objectives, but it is not the objective of the OBR and this Bill to stray into other areas related to economic policy-making. The purpose of the budget responsibility parts of the Bill is very much focused on the central core mandate of the OBR. Of course, it would be possible to turn the charter for budget responsibility into a much wider analysis of government economic policy, but that is not the charter’s purpose, nor is it the purpose of the Bill. The discussions about intergenerational transfer of fairness and all those things are important issues, but the key element for the consideration of Clause 1 is that the charter sets the appropriate and focused background in which the OBR can do its work.

We have set out a new and unprecedented set of objectives for fiscal policy, but it is not they but the mandate that flows from them that is the critical element. I am listening to questions about the drafting of the objectives, and I shall consider those carefully in the charter, but that is a very different matter from requiring in the Bill a direct linkage through to economic policy objectives.

[Baroness Browning]

Does my noble friend recall the concern expressed by the Treasury Committee when Sir Alan Budd appeared before it and the regrets expressed by Sir Alan when the interim OBR strayed into the area of employment forecasting? The feeling was that that was very unhelpful to the credibility and reputation of the OBR.

[Lord Sassoon]

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

[Lord Myners]

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

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

[Lord Sassoon]

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

[Lord Myners]

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

[Lord Sassoon]

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

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

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

[Lord Barnett]

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

[Lord Turnbull]

May I respond to the noble Lord, Lord Myners? He talked about not restricting the OBR’s ability to comment on general economic matters. We are trying to create an instrument of fiscal policy, not a council of economic advisers that can comment on issues, such as whether the economy is competitive, whether we have the right set of industry instruments or whether the policies are correct for the flexibility of the labour market. The OBR can forecast the effects of the policies as they stand. There are references to the Government providing the OBR with as much information as possible to enable it to make those forecasts, but it is not the OBR’s role to become a general commentator, as happens in some other countries, on all aspects of economic policy generally. Some of the amendments seem to be taking us towards that goal.

[Lord Sassoon]

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

[Lord Myners]

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

[Lord Sassoon]

First, Robert Chote and the Office for Budget Responsibility presented their own report this morning. I was unable to watch the whole of the Q&A session and do not know how long it went on, but it was wide-ranging. I believe that the document was seen on embargo terms by journalists ahead of the presentation so that they could ask informed questions of the OBR directly afterwards. Before somebody else challenges me on this, I should say that the OBR has pointed out that it will not always be able to present a document first if it is opining on new policy announcements. There will always be an opportunity to question the OBR directly on its forecasts, but that will be one part of the supporting architecture alongside a variety of other measures of performance, as well as new policy developments related to that, which a Chancellor will always at any time be responsible for. Of course, Chancellors must represent the OBR’s work correctly, but it is entirely appropriate and necessary for it to refer to that work in the broader policy context, just as I have explained that the charter and the Bill relate to only one—albeit critical—element of the Government’s overall economic policy-making framework.

[Lord Higgins]

Am I right in thinking that the Minister rejects this amendment?

[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?

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[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.

[Lord Eatwell]

My Lords, I realise that this is the first time that the Minister has had to face a Grand Committee and perhaps he will be better prepared next time we meet. However, as to these amendments, I have just four points to make in response to our debate.

The first is purely technical, in that the Bill as drafted is inconsistent. Clause 6(1)(a) states that the charter for budget responsibility may include guidance about the,

“assessment or analysis required to be prepared under subsection (3) or (4) of”,

Clause 4. However, subsection (3) of that clause refers to “fiscal and economic forecasts”. The charter is therefore required by Clause 6 to provide guidance on economic forecasts. The Bill is inconsistent if “economic” is not included in Clause 1. It is not at all clear what the Government really intend to do. It is only clarity that I seek here. As noble Lords have said, there is no great economic or political point behind all this. Actually, there is a good economic point, but there is no great political point. The amendment aims purely at making the Bill consistent.

My second point is that, in its consideration of fiscal policy, the OBR has to have some guidance as to the Government’s overall economic policy. Otherwise, it is not possible for the OBR to make a coherent assessment. If you do not believe me, just look at this document, the OBR’s Economic and Fiscal Outlook, which is exactly that. It is a very fine document, if I may say so. For example, the delayed rebalancing scenario and the weakening demand scenario are discussed in the document. Why is that? It is because the OBR is linking different economic performance to the consequences for fiscal performance. That is exactly what this document does.

I accept the point made by the noble Lord, Lord Turnbull, that we are not trying to set out some broad economic assessment committee, but, as another gloomy Cambridge economist, he should recognise that there is a clear interrelationship between economic and fiscal policy. The intention of these amendments was simply to capture that relationship. If this could be done in a better way and could make the Bill consistent, I would be very happy. If the Minister says, “We’ll think about this and see if we can achieve that in a better way”, so that this document does not trespass beyond the mandate given by the Bill to the OBR, I would be very happy.

I turn to Amendment 4. The Minister asked why the fiscal mandate should require an economic dimension. Here, there is a bit of economics involved, because there is a view among some economists that the economy has a normal rate of activity and a normal rate of employment to which it persistently returns having moved away from them because of some economic shock. It is clear that that is not the view of the economists who wrote this document, otherwise they would not have written such scenarios. It recalls the remark of the Nobel Prize-winning economist, Professor Robert Solow, that this view of policy was a vision in a dream. The fiscal mandate requires some economic dimension, because you could have different results depending on the nature of your economic policy—they are interlinked. That is all that I am trying to capture in my amendments—nothing more and nothing less.

I say in response to the noble Lord, Lord Oakeshott, that I do not think that the drafters of the charter know what “intergenerational fairness” means or what the economics of intergenerational transfers consist of. The noble Lord, Lord Higgins, got it exactly right: it is about changing the rate of investment in the economy. It has nothing to do with fiscal policy as such and it should not be in the charter. The suggestion of the noble Lord, Lord Oakeshott, that the word “intergenerational” be removed would provide some validity to a sentence that currently has none.

I am afraid that I must reflect the general opinion around the Grand Committee that these points have not been answered; indeed, I am not clear that they have been understood. Accordingly, I shall need to return to them on Report, by which time some more careful thinking about them will hopefully have been done.

[Lord Sassoon]

We have gone into territory in this discussion that is well beyond the consistency of the Bill. Consistency is important and we of course want to get it right. I see no difficulty in having consideration of an economic forecast, as provided for by Clause 4(3)(a), without there being a government statement in the charter on broader economic policy. I accept that there is a critical need for the OBR to make an economic forecast to underpin its assessment of the fiscal mandate, but I am still struggling to grasp the point on consistency.

[Lord Eatwell]

Perhaps I could help the Minister. Clause 6(1)(a) requires the charter for budget responsibility to give guidance on how to pair subsections (3) or (4) of Clause 4. Subsection (3)(a) of that clause refers to “fiscal and economic”. The charter must therefore include guidance on “economic”. At the moment, it does not.

[Lord Sassoon]

We are possibly getting this a little confused. Of course, in order to make an economic forecast, it may be appropriate for the charter to give, as it does in paragraph 4.10, guidance on economic forecasts, but that is very different from setting out in the charter the Government’s broad economic policy objectives. It is unnecessary, distracting and inappropriate for the charter to go into the broad economic policy objectives of the Government. However, I quite see that it is appropriate for the charter to go into questions that touch on economic forecasting. Indeed, it already does that, which is completely compatible with the terms of the Bill.

I will of course look again if it is a narrow consistency point. However, in trying to make a consistency point on what does not, from my reading of the Bill, need to be tidied up, the amendment opens up a much bigger swathe of territory, as I am sure the noble Lord is well aware, by including in Clause 1 broad questions of economic policy objectives. Yes, it is appropriate to talk about economic forecasting guidance in the charter—indeed, it is there—but its being there is much more specific and appropriate than opening up the charter to economic policy which, I would suggest, is simply not relevant. We will have a look again at the consistency question. My reading of it is that we do not have an issue there, but I will look at it again.

On the intergenerational question, I made the point that I am listening to what people say. I do not pretend for one minute to be an expert on the different interpretations and consequences of intergenerational fairness, but I will take back the suggestions that we have had on that from both sides of the Committee. Again, that is not something which, if there was any merit in changing the charter’s wording, needs any amendment to Clause 1 of the sort that we are discussing.

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[Lord Brooke of Sutton Mandeville]

My Lords, I apologise to the Committee if I have acted improperly by rising after the noble Lord, Lord Eatwell. I tried before.

The noble Lord, Lord Higgins, and I at different stages in our lives were Treasury Ministers in different Administrations under different Prime Ministers. Both of us served for several years. Before that time, I had the privilege of serving as a Back-Bench Member on the Finance Bill when the noble Lord, Lord Barnett, was Chief Secretary. There is symmetry here with my first experience of the noble Lord as a tutor on the Finance Bill because he was extremely scathing about the first group of amendments that I tabled. My noble friend Lord Lawson of Blaby had to rescue me and explain that there was more to my amendments than the noble Lord, Lord Barnett, was suggesting. However, the reason why there is symmetry with this moment in the Grand Committee’s affairs is that the second time I moved amendments, which was the very next group, the noble Lord accepted them with enthusiasm, which was extremely good for a young pupil. We have just experienced everyone being mildly upset with my noble friend the Minister, but it is just possible that everything will be set right by what he has to say.

Two of my noble friends on this Grand Committee, as Conservative Peers, have taken opposite views of these amendments. Obviously there are things to be said on either side. I am going to extend the Minister the courtesy of listening to him, not least because that also seems to me one of the purposes of Grand Committee.

[Lord Sassoon]

Oh dear! Where do I start? I should say—because I genuinely mean it—that it is important to have full and appropriate scrutiny in your Lordships’ House of what the OBR is about. However, we must be careful. I do not want to be too hidebound by some inappropriately narrow interpretation of propriety and convention, but I think that we need to be careful about the balance between achieving full scrutiny here and not crossing inappropriate lines. We need to remember that there are a lot of important provisions in the Bill that will enable scrutiny by Parliament as a whole, so the Budget Responsibility Committee will indeed be available for Select Committee scrutiny. Its forecasts and very full analysis, which we have discussed at some length, will be laid directly before both Houses. On funding, there will be separate reporting of the OBR’s expenditure in the Treasury estimates presented to Parliament, and of course there have already been quite a number of Written Questions. The noble Lord, Lord Myners, does not always like the way that I reply to his Questions, but perhaps if he would cut them down from six to one a day, I could focus even more attention on providing him with a really good Answer. However, as he knows, Questions that he and other noble Lords send in which relate to the OBR’s responsibilities always get passed on to the OBR.

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[Lord Oakeshott of Seagrove Bay]

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

[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—

[Lord Turnbull]

Perhaps I may suggest a way through this. One of the problems is that the action in subsection (7) could take place before the House of Lords has had a chance to comment on it. There is not even a right of consultation and no right even for noble Lords’ views to be heard before the House of Lords votes. If the Minister wants to retain the ultimate right of decision, something may perhaps be done about the sequencing, whereby the decision does not take place until the Economic Affairs Committee or whoever has had a chance to consult on this matter. That would enshrine the right to involvement, but would not give the House of Lords a right to decide in areas where you do not think it should have that right.

--- 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.

[Lord Higgins]

My Lords, the Minister is absolutely right that Amendment 38 is not necessary, but his reply was otherwise somewhat disappointing. We will, no doubt, wish to consider that, particularly the reference to the Delegated Powers Committee, before the next stage of the Bill. In the mean time, I beg leave to withdraw the amendment.

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[Lord Eatwell]

The amendments raise in different ways an important issue in relation to the draft charter. The noble Lord, Lord Turnbull, drew attention to paragraph 3.7, which states:

“The Treasury will continue to maintain the necessary analytical and macroeconomic expertise to provide on-going advice to the Government”.

That sounds perfectly sensible. However, it goes to the heart of the rather grey area of what OBR independence means that the same paragraph should declare:

“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.

Indeed, according to the draft charter:

“The OBR’s forecasts are essential inputs to the Government’s ongoing policy-making”.

And yet, the Government retain the right to disagree. I can see that the Government can maintain the right to disagree with anybody, especially with an independent body—which the OBR is supposed to be—but I do not then see how they can adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget report. They cannot adopt something with which they disagree as the official forecast; it just does not work. They cannot have it both ways; it is nonsensical.

It is obvious that the OBR will need to work closely with staff at the Treasury and other government departments in developing costings. That is why we should expect consistency between the OBR’s forecasts and those used by the Treasury—after all, they have worked together to bring them to fruition. They are the crucial decision variables. In his foreword to the forecast document that we discussed in the Chamber today, Robert Chote thanks government departments for providing the decision variables which have gone into it. The OBR is in essence a rather peculiar body. It is not really a non-departmental public body; it is a Treasury non-departmental public body which plays a crucial role in the development of policy. As paragraph 3.7 of the charter precisely states, it is the “official forecast”. I do not understand how the Government can disagree with the official forecast. They can disagree with the OBR, for example, when it takes a punt in describing some scenarios, as it does in the charter, but how can they disagree with the official forecast?

I cannot see why there is a need to require consistency between forecasts put forward by the Treasury and those put forward by the Bank of England. The noble Lord, Lord Turnbull, referred to competition between forecasts. I would take a rather different view and say that to require consistency would endow forecasts with spurious precision, whereas there are number of judgments in forecasts which are worth discussing in the context of the formation of economic policy.

The underlying point is that the OBR is distanced from official policy-making to a degree that was not possible in the past. That is an achievement of which this Government should be proud. But to describe the OBR as “independent” is an exaggeration. It is useful for propaganda purposes, but it is not credible to grown-ups, because it has to be involved in policy-making. There is a degree of independent methodology but not really of judgment, which is a different dimension. The Minister has to answer the following question: how can there be an official forecast with which the Government then disagree?

[Lord Sassoon]

Let me start with the easy end of this. Some important points were raised, not least the crucial point raised by the noble Lord, Lord Eatwell. I am very grateful to the noble Lord, Lord Higgins, for trying to save postage—we do look at every bit of possible wastage around government. However, on the point that my noble friend Lady Noakes raised, the construct here is that in Clause 8(2) the OBR is required to lay its reports before Parliament, and that means directly. So it is probably worth the price of a postage stamp or somebody pressing an electronic button, or whatever one does these days, to ensure that, given that this is an independent body, it does not forget to send a courier round to the Treasury as well. That is probably a failsafe that we should have in there.

On the nub of the questions around the linkage of the forecast to the Treasury and the linkage between the forecasts of the OBR and the MPC, the noble Lord, Lord Turnbull, kindly drew our attention to paragraph 3.7 of the charter. That is the critical one. In the first sentence it says:

“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast for the Budget Report”.

That is the Government’s intention, but the charter continues by saying that the Government,

“retains the right to disagree with the OBR's forecasts”.

[Lord Eatwell]

Will the Minister clarify this for me? Is he saying that while the Government intend to accept the OBR’s forecast, they may actually reject it? Is that what he is saying here?

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[Lord Sassoon]

I would not express it in quite those terms. It is absolutely the intention and the expectation that the Government will adopt the forecast in all but the most extreme circumstances. In answer to the challenge of my noble friend Lord Newby, it would be wrong to start thinking about hypothetical contexts. It is right, and it is the intention of the construct of the Bill and the charter, as the noble Lord, Lord Turnbull, explained it—and I agree with him that this is the appropriate construct—that ultimately the Minister directly accountable to the electorate and Parliament should retain the discretion not to use the OBR’s forecasts. That should be only a fall-back situation that needs to be legislated for. It is ultimately a decision that must be made by a Minister who is directly democratically accountable as part of the Government, as I hope we would agree, because it is so critical to underpinning economic policy. That does not change the fact that the OBR will be responsible for producing the official forecast or that the Government expect that there will be circumstances in which they disagree with the forecast. Nevertheless, it is entirely appropriate that that failsafe is allowed for and, in those circumstances, the Chancellor of the Exchequer will have to make the nature of the disagreement absolutely clear to Parliament. It will be completely transparent and the Chancellor should answer that question. That is exactly what we intend to have, but that does not mean that we are taking the OBR’s forecasts in any way lightly; it is a failsafe mechanism ensuring appropriate parliamentary and ministerial accountability.

There was one thing on which I may have misunderstood or misheard the noble Lord. He may have said in passing that he believed that the construct made it necessary for the OBR to be involved in policy-making. I see the noble Lord indicating that he did not say that. Good. Our construct means that the OBR absolutely is not involved. Just to be clear, it should not be involved in policy-making, and that is linked to why, at the end of the day, the Chancellor must have the right in extreme circumstances to disagree.

[Lord Eatwell]

Just to clarify, the point that I was trying to make was that the charter states that the OBR plays an important role in policy-making by providing forecasts and other estimates. In other words, those forecasts and estimates are part of the toolkit for making policy, but the OBR does not itself make policy decisions. That is what I meant to say.

[Lord Sassoon]

I am grateful that we have got that clearer. I should move on briefly to the question of whether it would be appropriate to align the forecasts of the OBR with those of the Monetary Policy Committee. Again, I am very much with the analysis of the noble Lord, Lord Turnbull, on this. It is worth mentioning what Robert Chote, the OBR chair, said on this subject. He made it clear during the hearings of the Treasury Select Committee that, as he sees it, the OBR and the Bank of England are independent bodies and each needs to make its own judgments for its own reasons. I completely agree, but he went on to say that he recognised that it would be valuable for the Bank of England and the OBR to have regular exchanges of views about areas of common interest. I expect that the OBR will exchange views with a range of organisations and individuals and, when introducing its document today, the OBR made it clear that in this first document it had met a range of organisations and individuals. In that context, of course, I would expect the OBR regularly to talk to the Bank of England, and each would be very interested in the other’s approach to these matters. However, it is critical that at the end of the day the OBR acts independently of the Monetary Policy Committee, of the Treasury and of all these other fine forecasting bodies.

These are important matters, and I hope that I have clarified the intention of the legislation in these areas. However, I believe, as do the majority of noble Lords who have spoken, that the OBR’s forecasts must ultimately be independent. Therefore, I ask my noble friend to withdraw his amendment.

[Lord Higgins]

My Lords, it seems to be still absolutely clear that having monetary policy based on one lot of forecasts and fiscal policy based on a different set of forecasts is likely to turn out to be very bad news indeed.

Secondly, on the question of whether the official forecast is to be predominant—a point that the opposition Front Bench made—it seems to me that the whole fanfare at the original press conference was saying, “No more fiddling figures by the Government or the Treasury—we will have a totally independent forecast”. Now we are told that it will be an independent forecast, but that the Government, if they do not like the OBR’s figures, might perhaps produce their own. I fail to see the point of the entire exercise if this is so. We will no doubt wish to return to this later, but, meanwhile, I beg leave to withdraw the amendment.

Budget Responsibility and National Audit Bill [HL]

Lord Sassoon Excerpts

Thursday 25th November 2010 Lords Chamber

Moved By

[Lord Sassoon]

That it be an instruction to the Grand Committee to which the Budget Responsibility and National Audit Bill [HL] has been committed that they consider the Bill in the following order:

Clauses 1 to 3, Schedule 1, Clauses 4 to 20, Schedule 2, Clauses 21 and 22, Schedule 3, Clauses 23 to 26, Schedules 4 and 5, Clause 27, Schedule 6, Clauses 28 to 31.

Motion agreed.

Equitable Life (Payments) Bill

Lord Sassoon Excerpts

Wednesday 24th November 2010 Lords Chamber

Moved by

[Lord Sassoon]

That the Bill be read a second time.

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

My Lords, the Government take very seriously the injustice that Equitable Life policyholders have faced. In our programme for government we pledged to implement the Parliamentary and Health Service Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policyholders for their relative loss as a consequence of regulatory failure. The importance that the Government place on Equitable Life is clearly reflected in our actions and our desire to achieve a swift resolution for policyholders. Today’s Bill is an important step towards delivering this ambition.

Since coming to power in May we have made more progress on this issue than the previous Administration achieved during their entire tenure in office. We have done this by publishing Sir John Chadwick’s report on losses suffered by policyholders and their impact; by commissioning the first bottom-up estimates of losses suffered by policyholders and publishing them in full; by establishing the Independent Commission on Equitable Life Payments; by announcing our intention to start making payments by the middle of next year; and by announcing that around £1.5 billion of public funds would be allocated to the payments scheme. While it is important to note just how far we have come, I am well aware that there is still some way to go.

The Government accept that the relative losses suffered by policyholders amount to some £4.3 billion. This is the difference between what policyholders who invested from September 1992 onwards received from their policies and what they would have received if they had invested elsewhere. It includes all the Parliamentary Ombudsman’s findings of maladministration, which the Government accept in their entirety. At the spending review, my right honourable friend the Chancellor of the Exchequer announced that around £1.5 billion of funding would be allocated to the scheme. This is more than four times the £340 million figure recommended by Sir John Chadwick.

A number of parties have raised the plight of with-profits annuitants—WPAs. They are trapped with policies that are providing a declining income for their retirement. As a Government, we have recognised their circumstances and decided to cover the full cost of their losses. This amounts to approximately £620 million. WPAs will be paid their losses through regular instalments for their lifetime.

Taking into account the pressures on the public purse, Her Majesty’s Treasury could allocate only £1 billion over the first three years of the spending review. This will cover the first three years’ payments to WPAs and lump sum payments to all other policyholders, and to the estates of the deceased, which will also be paid during this period. The remaining amount of approximately £500 million will be used to provide ongoing regular payments to WPAs.

There has been some disappointment from policyholder groups about the amount that we have allocated to this scheme. However, there are many competing priorities for the limited funds that we have at our disposal. We must also remember that the Parliamentary Ombudsman herself stated that,

“the public interest is a relevant consideration and that it is appropriate to consider the potential impact on the public purse of any payment of compensation in this case”.

I know that independence of the payments scheme was a key concern for many parties, and I can assure this House that it is also an important issue for the Government. In July, the Government established the Independent Commission on Equitable Life Payments. The commission has been asked to advise on how best to allocate fairly funds provided for the scheme to all policyholders, with the exception of WPAs and their estates. The commission is in consultation with interested parties. This will help us to ensure that the views of policyholders are heard, and will help to inform the commission’s advice. The Government are keen that the commission should conclude these discussions as quickly as possible and have asked it to submit its report by the end of January.

Regardless of the final design of the scheme, the Bill before the House today is essential to ensuring that payments can be made. The Bill authorises the Treasury to incur expenditure and to make payments to those adversely affected by the Government’s maladministration in their regulation of the Equitable Life Assurance Society. The Bill also allows the Treasury to make provision for these payments to be disregarded for tax and tax credits. My right honourable friend the Chancellor of the Exchequer announced in another place that we will use this power so that payments will be made free of tax to all policyholders.

The Government have also discussed the issue of means-tested benefits with the Department for Work and Pensions. Those discussions have led to the decision that lump sum payments will be treated as capital for the purposes of assessing eligibility for means-tested benefits. This is fair because in normal circumstances this money would have become part of policyholders’ capital whenever it was received. Capital limits do not immediately cut off eligibility for benefits; they work on a sliding scale, gradually reducing support for individuals with larger assets. However, for WPAs the payments will be treated as income for the purposes of means-tested benefit. This is also fair as it reflects the structure of the policy that they bought and which gave them a regular income stream.

The Government have decided that National Savings and Investments—NS&I—is the preferred option for delivering this scheme. As part of its normal functions, NS&I already makes millions of payments to customers every month. It has the necessary processes and infrastructure in place successfully to deliver a scheme of the size and scope that we have proposed. The Bill will grant NS&I the power to administer the scheme and ensure that payments can be made as soon as possible. As I have said, it is our ambition to start making payments in the middle of next year.

I am sure that we all want a swift end to this matter, and the Equitable Life (Payments) Bill is a key milestone on the road to resolving these long-standing issues. It is a clear sign of the Government’s commitment to those who have suffered losses due to the maladministration in the regulation of Equitable Life. Policyholders have waited for more than a decade for justice. Passing this important piece of legislation is essential to achieving it. I beg to move.

--- Later in debate ---

[Lord Sassoon]

My Lords, first, I thank noble Lords for their valuable contribution to this afternoon’s debate. It is clear that there is a depth of support for ending the plight of Equitable Life policyholders and that we all agree that this saga has gone on for far too long. I am particularly grateful to the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord McKenzie of Luton, for making it clear at the outset that the Opposition support the Bill.

The matter of Equitable Life is very complex and continues to affect directly the lives of a very large number of people, both in Britain and abroad. There is a pressing need to get on and reach a resolution swiftly, as policyholders have already waited 10 years for the Government to address this long-standing issue. Many of those people are elderly, as we have been reminded, and should not have to wait a day longer than necessary for justice. I shall not repeat the steps that we have already taken since coming into office, but I am grateful to my noble friend Lord Kirkwood of Kirkhope for recognising the steps that the coalition Government have taken.

I am getting somewhat experienced in doing Second Readings and other readings in this House. A great number of technical questions were asked today in relation to the length of the debate. Noble Lords will perhaps forgive me if I inevitably have to leave a number of points on the table, but I will write to sweep up the points that I cannot answer now. I note that the Benches behind the opposition Front Bench are commendably empty of one or two of the usual suspects who tend to come in during my closing remarks, but I will deal with as much as I can.

First, I want to take the opportunity to recognise those who have continually fought in the interests of policyholders, going back to 2000. That point was first mentioned by my noble friend Lord Kirkwood of Kirkhope. Particular mention must go not only to the Parliamentary Ombudsman but to the Equitable Members Action Group and the Equitable Life Trapped Annuitants, who have been referred to already. The Government have held meetings with these parties on numerous occasions and I commend them for their commitment to this cause. Their views have helped us to shape our understanding of the issue and given us an insight into the views of the broader group of policyholders. Their insights have of course proven invaluable. We need to get this right. The best way to achieve that is to interact with the people directly affected and to gain a clear understanding of their position.

There has, of course, been disappointment from those policy action groups about the amount that we have made available for the scheme, but we have had to strike a difficult balance between the valid, deserving cause of policyholders and the wider interests of British taxpayers. It is important to remind the groups that the Parliamentary Ombudsman herself stated that it was appropriate to consider the potential impact on the public purse of any payment. I know, as has been recognised today, that there are many important conversations to be had about how the scheme will operate. It would be preferable to have had all those conversations before turning our attention to the Bill but, in the context of needing to get on and conclude this episode, we wanted to make sure that the process was not unnecessarily extended.

I shall address some other, specific points that came up. The noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lords, Lord Willoughby de Broke and Lord McKenzie of Luton, in different ways, raised the question of the quantum of the pot and the size of the cut for non-WPAs. I can confirm that it is, on average, around 66 per cent. One question was how this compares with a spending review where the departmental cuts were, on average, around 20 per cent. First, the spending review was not a linear exercise; there were different cuts in different areas. Secondly, it has been a difficult balance between fairness to policyholders and fairness to the taxpayers. It is important that we have still managed to cover the costs of payments to the WPAs who purchased their policies after 1 September 1992. I will come back to that cut-off point in a moment, but it is important to recognise that we have covered those payments in full, because we believe that that is the hardest-hit group. It is also important that non-WPAs are still getting more than twice what they would have received with a scheme based on the loss figures produced by Sir John Chadwick’s methodology.

We accept that the relative loss figure is around £4.3 billion. At the end of the day, it has essentially been a matter of judgment as to what the appropriate number should be. Approximately £225 million of the initial £1 billion is for WPAs and their estates, leaving approximately £775 million for the lump-sum payments to non-WPAs. Based on the current Towers Watson estimate of WPA losses, that leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards.

There were questions from the noble and learned Lord, Lord Davidson, and the noble Baroness, Lady Drake, about an appeals process. There will indeed be means by which policyholders can raise concerns about any incorrect application of the scheme rules to individual cases. Full details of that will be included in the document setting out the scheme design, but I can say today that it will certainly include a process whereby, if a policyholder believes that the rules of the scheme have been incorrectly applied to his or her data, he or she will be able to raise a query with the delivery body stating the nature of the concern. The query will be pursued by the delivery body and, if there is merit in the challenge and the challenge is upheld, a recalculation will take place.

If the challenge is not agreed by the delivery body, the policyholder will have the option of taking the case to the review panel. The panel will consider the case in full and will be able to make a fresh decision based on the facts of the case. If a complainant’s case is upheld, again, a recalculation will be carried out. The review panel will be independent of the original decision-making process and will be suitably qualified to consider the complaint in full according to public law principles, although it is too early at this stage to state who might be on the panel.

On the question of why we are covering the cost of post-1992 WPA losses in full, throughout this process the policyholder groups have made it clear that, due to the nature of their policies, WPAs have been one of the hardest-hit groups. They were particularly vulnerable to losses because they were unable to move their funds elsewhere or to mitigate the impact of their losses through employment. They are also generally the oldest policyholders. In answer to the specific question from the noble and learned Lord, Lord Davidson, approximately 37,000 WPAs will be paid under the scheme.

The noble and learned Lord also asked about the role of reliance. Given the time that has elapsed and the almost impossibility of policyholders proving what they would have done in a counterfactual situation, faced with properly regulated returns, a truly reliance-based approach is impossible in this case. I have explained the approach that we have taken.

On the question of how fairness has been worked out within the compensation pot and the principles that applied, the independent commission is now considering the split of the pot. It has made an interim report and its final report will be published by the end of January. The noble Lord, Lord McKenzie, asked about public scrutiny of the commission’s report. At the time we publish the document, I anticipate that my honourable friend the Financial Secretary will want to make a Statement in another place. Before we get to that, there is a further round of consultation by the commission. Therefore, I believe not only that is there a full consultation process but that there will be appropriate opportunity for Parliament to consider the results of the commission’s work. The commission’s report will of course be made available to both Houses of Parliament.

My noble friend Lord Kirkwood of Kirkhope asked about the scheme paying out. I confirm that it is our ambition to make the first payments in the middle of 2011. This is a complicated scheme, and we must get the details right. We believe that starting to make the payments in the middle of next year is an ambitious but achievable target.

My noble friend also asked whether we might in any circumstances be able to pay out more than £1.5 billion. I should make it clear that £1.5 billion is the figure that we judged the British taxpayer can afford to pay, so I cannot hold out any hope of us finding more money at a future date. This process has dragged on too long already, and we need finality.

On capital thresholds and the way in which benefits operate, capital limits do not immediately cut off eligibility for benefits because they work on a sliding scale, gradually reducing support for individuals with larger assets. It is unlikely that many recipients who would otherwise have been eligible for means-tested benefits will receive large enough payments to affect their eligibility dramatically.

In answer to a couple of questions from the noble Baroness, Lady Drake, we have no plans to make interim payments. Again, they would introduce more complexity and could delay the set-up of the overall scheme. We want to focus on getting the main scheme up and running as quickly as possible.

There was a question about consistency with similar payment schemes. The independent commission will consider aspects of fairness that it deems appropriate and the Government will take its advice very seriously. However, it is important to remember that the specific features of the Equitable Life payment scheme make it very different from some other pension schemes, so there is no broad read-across.

There were a couple of questions, including from the noble Baroness, on the gross/net issue. The calculations for the WPA payments are being made on a gross basis. The noble Baroness asked a broad question about long-term savings, which links back to my noble friend’s question about different regulatory regimes. I think that in some ways she answered my noble friend’s question when she pointed out that we had been through one very significant change in the insurance regulatory regime a number of years ago and are about to go through another fundamental change to the overall regulatory set-up. Of course, there is never a no-failure regime in financial regulation, but the landscape will change significantly. In that context, we take the sustainable and healthy long-term savings market in the UK extremely seriously.

I am conscious that one very important question was asked by the noble Lord, Lord Willoughby de Broke, and was touched on by the noble Lord, Lord McKenzie of Luton. That is the question of the pre-1992 with-profit annuitants. The first issue here is that they took out policies before any maladministration could have affected their decisions. That is the first and principal reason why they have not been included in the Government’s proposed payment scheme. WPAs were affected by Equitable Life being run badly, in part as a result of the Government’s maladministration. Sir John Chadwick and Towers Watson looked into what these WPAs would have received had there been no maladministration. They concluded that the pre-1992 WPAs received more from Equitable Life than they would have if the society had been properly regulated. That is because Equitable Life paid out more to them in the early years than it would have done if there had been no maladministration. Even though it paid out less than it should have done in later years, the former overpayment outweighs the latter, so it is the Government’s view that no compensation is due to that category of annuitants.

[Lord Willoughby de Broke]

My Lords, I direct the noble Lord’s attention to paragraph 15 of the Explanatory Notes, which says:

“They are a group of policyholders who are ‘trapped’ in their policies, in receipt of a declining income in their retirement and generally the eldest”.

That is the absolute definition of the pre-1992 annuitants. Their income has gone down very significantly since 2002 and it was not, as I said, their fault that they did not know that there was maladministration. It is grossly inequitable that they are left out of this arrangement altogether and just abandoned to twist in the wind by the Government.

[Lord Sassoon]

My Lords, I am conscious of the time that we have got to. I can only repeat that, while I accept what the noble Lord reads out as factually correct, he omits to point out what I have said: it is nevertheless the fact that those pre-1992 annuitants could not have been affected by maladministration, which is the purpose of this compensation scheme. Although I entirely accept the analysis of what has happened to their income levels in recent years, the judgment is that, on balance, they were paid more in the early years than they should have been, and that exceeds the reduction in more recent years. It is a regrettable situation but not one that it would be proper to bring into the compensation scheme.

[Lord McKenzie of Luton]

My Lords, the Minister has been very full in his replies. Could he comment on one specific point? I think that he has confirmed that the comparator is on a gross-of-tax basis. Therefore, if WPAs who have been kept whole in addition get a tax exemption, does that not provide for that group more than its actual loss on that basis?

[Lord Sassoon]

I am conscious that I have not answered the question. Given the time, I will write with a clear analysis of the tax position and what it results in. I have not lost sight of the question and I will sweep up anything else that I have missed.

I reconfirm that the Government take the maladministration of Equitable Life very seriously. We have shown that resolving this issue is a real priority of the Government and have taken the necessary action to reach a fair and swift resolution. I fully sympathise with the plight of policyholders who have waited more than a decade for justice. It is time we brought their suffering to an end. I believe that ours is the appropriate course of action and that the Bill before the House today will help us achieve that.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Finance (No. 2) Bill

Lord Sassoon Excerpts

Monday 22nd November 2010 Lords Chamber

Moved By

[Lord Sassoon]

That the Bill be read a second time.

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

My Lords, this year we have faced quite exceptional circumstances. The general election and necessary emergency Budget have resulted in a plethora of finance Bills. The Bill introduced by the previous Government before the election was considered as part of the wash-up process. The second Bill of the year was understandably short as this Government looked to enact fiscal changes to reassure the markets and the British people. This has left a number of more minor, technical measures that need to be legislated this year but for which there was no space in the other finance Bills. They are the measures before us today.

There is little controversy in this Bill. I am sure that noble Lords on the Benches opposite are well aware that all but one of the measures were announced or agreed by the previous Government. That exception is a minor measure to ensure consistency of treatment of capital allowances. This is not to say that the Bill before us is unimportant. The Bill improves the treatment for carers in Clauses 1, 2, 3 and 16. The vital and under-recognised role that they play in society is one that I know is championed by many on all Benches in this House. The changes introduced in these clauses simplify and align tax rules in small but important ways.

Businesses are supported by 10 clauses. Clauses 5 and 6 assure the future of the venture capital schemes that have supported over £10 billion of investment since their introduction. Clause 9 clarifies the rules on company distributions and Clause 11 fixes glitches in the debt cap rules introduced in 2009. Clause 10 assists real estate investment trusts in complying with their distribution rules.

The changes introduced to HMRC powers follow similar changes made last year. These align the penalty and interest rules across the taxes administered by HMRC to ensure consistency and predictability. The changes will also allow HMRC to be more efficient in its application of penalties and interest. Furthermore, the change in Clause 23 to the duty on long cigarettes will allow HMRC to tackle avoidance of tobacco duty—a cause widely supported.

While many of the changes in this Bill are technical and rather sterile there is a softer side. The encouragement of low emission goods vehicles, through changes in Clause 18, will help support a move to a low-carbon economy. Clause 30 allows the national employment savings trust to be established, which will help approximately 3.6 million people save for their retirement. Clause 31 exempts from tax trusts established to help those exposed to asbestos. This change will help to ensure the viability of such trusts—a matter of real importance.

This Bill has also allowed the Government to demonstrate how tax policy making will be improved. The clauses of the Bill were published in draft in line with commitments set out in the June Budget. This allowed eight weeks for consultation, during which over 60 comments were received. Changes were made to nine clauses as a result of these comments. This different approach will ensure greater predictability, fewer changes and better consultation. We have already made a good start on the first of these. My right honourable friend the Chancellor of the Exchequer has announced that the Budget will be on 23 March next year, giving four and a half months’ notice. My honourable friend the Exchequer Secretary has announced that draft clauses for the 2011 Finance Bill will be published on 9 December so that they may be consulted on.

This is a simple, straightforward Bill that eases burdens on individuals, businesses and HMRC. It is one that the previous Government all but proposed themselves. It is brief but important, and I commend it for consideration by the House.

--- Later in debate ---

[Lord Sassoon]

My Lords, the debate on the Bill this afternoon has been interesting and wide-ranging, even though it has been between relatively few of us. It has covered a fair amount of ground. I normally respond thematically to points made in debates, but I am trying to get to grips with the number of them. They cover a wide area and I will try to group one or two together. It is interesting that no noble Lord who has spoken has touched on the details of the measures in the Bill, as opposed to the process by which the new Government are going about making tax policy. I stuck my neck out in my introduction and said that the measures were uncontroversial, and I welcome the fact that they appear to be. I am grateful to have that confirmed.

I will start with one or two comments on growth and the broader strategy. First, it is important to remind noble Lords that we have been rolling out a very considerable suite of growth-enhancing policies, right from the start of the new Government. First, we sent a very strong signal to the markets that we had the deficit gripped and that we had indeed come back from the brink of bankruptcy. That is what has convinced the markets that interest rates can remain low, which underpins what business needs in order to invest.

[Lord Myners]

My Lords, I come back to a point made in an earlier debate when I asked the Minister whether the differential between UK and US bond rates has widened or narrowed since 11 May. At the time, he shook his head, indicating that they had narrowed. In fact, as he has now been obliged to cover in a Written Answer, they have actually widened. The Government can claim no credit for the reduction in interest rates. It is a global phenomenon and, if anything, the risk to the UK economy is deemed by financial investors to have increased since 11 May, rather than decreased.

[Lord Sassoon]

My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.

As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.

[Lord Barnett]

I have no objection whatever if the Minister has a better definition than he has given so far.

[Lord Sassoon]

For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.

[Lord Eatwell]

We are having some fun, but this really is a very serious matter indeed. The Minister has used this expression time and time again as one of the key factors that justifies the economic stance taken by Her Majesty's Government. Is he saying that he cannot stand at the Dispatch Box right now and tell us what it means?

[Lord Sassoon]

My Lords, as I said, a Question has been tabled and I shall answer it then. I have already referred the House to the two meanings in the Oxford English Dictionary first edition of 1888, which I think explains it very well. We had a reference to PIMCO earlier in the debate from my noble friend Lord Ryder of Wensum. I refer the noble Lord to the comments of the founder of PIMCO a few months before the election when he talked about the toxic pile. He may or may not have been front-running a position, but when the largest bondholder in the world talks about UK debt in toxic terms, the point is well understood. The critical question that arises from all of this—

[Lord Marlesford]

My Lords, perhaps I may help my noble friend by giving an example of a very dangerous toxic situation that was certainly inherited from the previous Government and of which the noble Lord, Lord Myners, is extremely aware: that is, the level of credit card debt in this country on which interest is being paid—I am not talking about the ordinary stuff that we pay off each month. That has not decreased. According to the Bank of England’s September figures, the level of credit that has been overrun is currently at £58 billion and interest is being paid at more than 15 per cent, which is £9 billion of interest due each year. The noble Lord, Lord Myners, was kind enough to write to all the banks asking them for details of what value they had on their books. Only one answered, and that was Barclays Bank—and I felt that it prevaricated in its answer. Does my noble friend agree that that is an example of the reservoir of potential toxicity that can make people very apprehensive about the fundamentals of Britain's economic situation?

[Lord Sassoon]

I am grateful to my noble friend Lord Marlesford for pointing that out; I absolutely agree. Any country that has total debt—he is talking about wider debt—of 400 per cent of GDP, as this country has, is indeed skating on very thin ice.

[Lord Myners]

Surely it is a matter of the purpose for which that debt is used. If the Minister is criticising people for taking out mortgages to buy their homes, which is the largest single source of domestic debt, that is a novel and important statement from the government Benches. Surely, Minister, you need to have regard to both the assets and liabilities on both the public and the private sector balance sheets.

[Lord Sassoon]

I am grateful for the noble Lord’s attempts to put words into my mouth, but of course we want to see a steady and sustainable mortgage market.

I want to get back to the question of growth and getting the economy on track, which is where we got into this interesting debate but somewhat sidetracked from the main thrust of the debate this afternoon. The noble Lords, Lord Eatwell and Lord Desai, asked about growth, which is important. The question is whether the growth will be sustained and at what levels. I was just looking at the latest of the international forecasts issued: the OECD's November 2010 economic outlook from last week. It is now forecasting growth for 2010 to be 1.8 per cent, growth for 2011 to be 1.7 per cent, and growth for 2012 to be 2 per cent. Of course, we wait until next week to see what the OBR’s latest forecast will be.

On one point of detail from the question asked by the noble Lord, Lord Desai, I do not think it is correct to say that the quarter 2 growth numbers have been revised down. There has been some discussion about what was always seen as a surprisingly high number, but there has been no formal revision of those numbers. If there is, it will be on 22 December. Growth prospects remain robust in the view of most independent commentators, although, as I have said here before, of course the recovery is bound to be choppy.

We then had a couple of comments about child benefit policies. That links into the general state of the economy that we inherited. My right honourable friend the Chancellor announced the withdrawal of child benefit for families containing a higher rate taxpayer in order to make a contribution to addressing the deficit that we inherited from the previous Government. In current circumstances, it is simply wrong that the lower paid should be subsidising the better off. Times are very tough; this is a tough decision but a necessary one. There have been all sorts of suggestions as to how it could be implemented, but the Chancellor was explicit about the need to avoid a complex system of either means-testing or something that would require significant changes to the existing PAYE and self-assessment systems.

[Lord Eatwell]

On child benefit, I did not argue that it was not inappropriate for the burdens of deficit reduction to be widely shared; I argued that the Government’s policy will not work. It has not been thought through. It is incompatible with the structure of child benefit as it is paid today. Perhaps the Minister would like to take my example of a top-rate-paying taxpayer who, on the death of her husband, moves in with a daughter who is receiving child benefit. Is that grandmother going to be fined by the Chancellor or will her daughter lose her child benefit? I do not think that is very family friendly. Do you?

[Lord Sassoon]

I have explained the general and difficult principles within which we have had to operate. My right honourable friend has had to make difficult decisions on child benefit. The case study put forward by the noble Lord, Lord Eatwell, reminds me of the sort of things that were presented in a tax exam when I was struggling through my accountancy qualification. Of course there are complicated cases but, as I have explained, in the implementation of child benefit it has been important to avoid a complex system or one that required a fundamental rewrite of the existing PAYE and self-assessment systems.

I come back to the fundamental point underlying all this which is that growth prospects remain on track and, in answer to a related question from the noble Lord, Lord Desai, borrowing remains on track. I will give an update in parallel with the autumn forecast next week, in the normal course. However, in terms of the funding to date, the programme is ahead of the pro-rata schedule, so the Debt Management Office has raised £127.4 billion to date, which accounts for 77.2 per cent of the remit that it was given at the time of the Budget. That is slightly ahead of the pro-rata run rate. The DMO has carried out that mandate on very fine terms. If the remit needs to be changed in any way, that will come next week, in the normal course.

I thought there might be some points to address to my noble friend Lord Ryder of Wensum, but his advice was addressed to the Monetary Policy Committee. I listened with interest to what he had to say and note that in some of the things he has said in this area in the past he has proved prescient. I am sure that the Monetary Policy Committee is listening to his thoughts.

I turn to tax policy making. I was grateful to the noble Lord, Lord Eatwell, for welcoming the steps we have taken and to my noble friend Lord Newby. In answer to their questions, the Government welcome the contribution of the Economic Affairs Committee. If the new timetable gives the Select Committee time to look at the draft legislation, as it should, we would welcome any comments that it has on it. That will add the greater scrutiny and transparency that we wish to see. I take my noble friend’s point about fuller Explanatory Notes and will look to see whether there is any more that we can do on that.

On the question about whether it was right in around 2003 or 2004 to move responsibility for tax policy making wholly into the Treasury, from what I observe of how that operated then and now, there have been considerable gains from the physical collocation of a large part of HMRC’s headquarters and the Treasury. I certainly observe that HM Treasury’s tax policy making is absolutely informed, as it must be, by what HMRC brings to the table, even if the formal responsibility is not what it was originally.

On one final point, my noble friend Lord Trenchard talked about the number of European-related clauses. To get the record straight, in another place, the litany of such clauses was slightly erroneous because, on my list, Clause 14 on film tax relief has no European link, whereas Clause 4 on seafarers’ earnings has a European link. The list is a series of technical adjustments, whether it is the important question of the length of cigarettes to reflect an EU directive aiming at counteravoidance or technical adjustments related to VAT directives. These things are relatively technical and it is important to make sure that we align the details of our regime with what is changing in Europe.

I am afraid that I may have disappointed my noble friend Lord Newby, who commended me charitably for my brief opening, but I will not detain noble Lords any longer other than to say that we have had an interesting debate today. We have not talked in any detail about the clauses of the Bill, which I take to mean that the Bill—in the way that it removes some of the discrepancies that plague our tax system—is welcomed on all sides of the House. I commend this Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Ireland: Financial Assistance

Lord Sassoon Excerpts

Monday 22nd November 2010 Lords Chamber

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

My Lords, with permission, I will repeat a Statement made by my right honourable friend the Chancellor of the Exchequer.

“Mr Speaker, I would like to make a Statement regarding financial assistance for Ireland. I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the chair of the Treasury Select Committee and the Shadow Chancellor to keep them informed of the latest developments.

The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.

The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, its had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as the IMF and others, this situation could not go on.

Members will understand that it would not have been appropriate for us in recent weeks to engage in public speculation about whether Ireland should request assistance from the international community. I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday, a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.

Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers to,

“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system”.

The statements made clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy, which the Irish Government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3 per cent of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of its banks, so that Ireland’s banking system can perform its role of supporting the economy.

Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will in part depend on the IMF analysis of what is needed, and Prime Minister Cowen has said he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute around one-third of the total. The total European package will provide the other two-thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort.

The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland. The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days.

The United Kingdom is not a member of the euro—and will not be a member of the euro while we are in government—so we will not participate in the eurozone stability fund. However, the previous Chancellor of the Exchequer agreed to UK involvement in the European mechanism two days before I took office. I made it clear at the time that I did not believe he should make that commitment. But it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at a time like this I judge would be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.

On top of this, I have agreed the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5 per cent of Britain’s total exports abroad. Indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two-fifths of its exports going to the Republic. Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland, but two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an importance presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland, so it is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has also deemed it in its national interest to consider a bilateral loan to Ireland.

Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of this package. I will keep the House informed. Later this week, the Secretary of State for Northern Ireland and my honourable friend the Financial Secretary will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, as we will need to take primary powers. Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.

This is a situation of great difficulty for Ireland, and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had hugely leveraged banks and a badly regulated financial sector—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the financial crisis took hold. The arguments against Britain joining the euro are well-rehearsed, not least by me, but while “I told you so” may be correct, it does not amount to an economic policy.

When this coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our own house in order. Whereas we were once seen as part of the problem, we are now part of the solution. Ireland is a friend in need, and it is in our national interest that we should be prepared to help it at this difficult time. I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord Eatwell, for confirming that the Opposition are in support of the proposed package, and I appreciate that support.

He asked about the claims that the UK has on Ireland. The latest numbers I have seen state that on 30 June this year, total UK banking-sector claims on Ireland were $131.6 billion—ranking second only to Germany’s banking-sector claims on Ireland. Indeed, they are substantial. However, as I said when repeating my right honourable friend’s Statement, we in the UK have a well capitalised banking sector that is capable of withstanding any pressures from Ireland and elsewhere.

The noble Lord refers to growth. Of course this is absolutely critical; it is part of the Irish Government’s plans and is part of the plans in the UK, which we have already discussed at some length this afternoon. Indeed, I can confirm that of course the Government are very much engaged through the Europe 2020 discussions, and in other ways, to make sure that we promote healthy growth within Europe and globally.

The accounting for any bilateral loan that may be put in place will be a matter for the Office for National Statistics and the Office for Budget Responsibility, but my understanding is that, with a loan on one side and a matching asset that we will have in our claim on Ireland, there should be no effect on the size of the deficit, because this would otherwise be just a contingent liability. As I said when repeating the Statement, we would expect any loan that is made to be repaid.

As to why, if we are lending money to Ireland, there should not be other loans, this is an exceptional situation. Ireland is our closest trading partner which takes a high percentage of our exports. We are contributing to a European package and to a multilateral global effort through the IMF. By supporting the package for Ireland we will support the very many businesses across the United Kingdom that trade with Ireland. That is one of the critical reasons why it is in the national interest that we support the package.

[Lord Reid of Cardowan]

My Lords, I thank the noble Lord for repeating the Statement. I wholeheartedly believe that the Minister and the Government are correct to extend their assistance and solidarity to Ireland at this time, not least because of our closeness as neighbours and trading partners and because of our mutual interests on the island of Ireland itself. It is understandable that the noble Lord and the Government maintained their silence on discussions up to an appropriate point.

Will the Minister ensure that, while everyone understands that extended assistance of this nature will require discipline and considerable restraint on the part of the Irish, the British Government will never lose sight of the fact that ultimately it will be growth that will take Ireland and many other nations out of the position in which they find themselves? Therefore, any constraints placed on the Irish as a condition of the loans and the assistance that we give them should not, if we can help it, constrain that growth to the detriment of Ireland's success.

[Lord Sassoon]

I am grateful to the noble Lord for his remarks. It is important to remember that the IMF is very much involved in the negotiation of the terms of the loan and brings to the party very considerable experience of putting together loan conditions in similar situations. From its previous experience, it will be well seized of the need to see the Irish economy—along with other economies that have this problem—growing in future.

[Lord Skidelsky]

My Lords, perhaps I may draw the Minister's attention to Wolfgang Münchau’s statement in today's Financial Times. He wrote:

“At a time of extreme fiscal tightening, moderate monetary tightening and weak global demand, I fail to see where Ireland will grow”.

Perhaps the Minister will explain how he sees that Ireland will grow, and how its programme of accelerated fiscal austerity as a condition of the bailout will encourage growth in the Irish economy.

[Lord Sassoon]

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

[Lord Newby]

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

[Lord Sassoon]

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

[Lord Higgins]

My Lords, it is very reassuring to hear what the noble Lord has just said. However, the Chancellor has made a very sound case for why we need to participate in addition to the help provided by the IMF and the European Union. When we are borrowing heavily, it is rather strange to be lending to Ireland. We shall need to look very carefully, as suggested, at the terms of the loan. The Chancellor says that the matter will be raised in another place. Will we have an opportunity to debate it in this House as well, given the expertise which exists here?

It is difficult to avoid the view that this is something of a sticking plaster, leaving a number of other issues unresolved. Ireland is still in the eurozone, and the interest rates that are determined by the European Union and the exchange rate give it very little scope. Has not the eurozone grown too large and are we not in danger of this kind of situation occurring not simply in Ireland and Greece but also in other countries? The whole system is formulated in such a way that it is not possible for members to withdraw when it might be better for them to do so, rather than get into the kind of situation that we have seen here. Despite the fact that this is clearly not something that would be welcomed in Brussels, and given that we have an interest in the matter along with those in the eurozone, should we not consider whether a more flexible arrangement is becoming essential?

[Lord Sassoon]

My Lords, any bilateral loan, as my right honourable friend the Chancellor has said, will require primary legislation. So it will go through the normal processes, including those of this House. It is in the UK’s interest to ensure that there is a strong eurozone. The present difficulties have brought to the attention of eurozone members—and of those of us who wish to see a strong zone but who are not in it—the fact that there are a number of defects in the architecture, of which the need for a permanent bail-out arrangement is one. We will work constructively with our partners in Europe to ensure that the eurozone is better able in future to withstand any buffeting of individual economies such as we are seeing at the moment.

[Lord Pearson of Rannoch]

My Lords, have Her Majesty’s Government yet understood that the euro was always designed for disaster? Do they not see that the longer the political class props it up, with its single interest and exchange rates and its lack of a federal budget, the greater and more ruinous will be the crash when it comes? Are they also beginning to get an inkling—just an inkling—that, behind the euro, the project of European integration is also designed for disaster, as I have often pointed out in your Lordships' House?

To be constructive, instead of throwing billions upon billions of good money after bad, why do they not spend a fraction of it on returning their currency to the PIIGS, Portugal, Ireland, Italy, Greece and Spain? Would that not be just one small step away from the insanity that is the EU?

[Lord Sassoon]

It is always good to have the noble Lord with us on these occasions to share with us his big picture vision, even if it is not one that I or the Government share. We are where we are with the eurozone at the moment, and we must be constructive partners to make it work. It is clearly regrettable that articles of the European Union treaty, such as Article 122, which should have been used for such things as natural disasters, has been enabled to be used for a mechanism in which the UK was committed to be a contributor by the previous Government. There are certain things that we must get straight going forward so that the treaty is used for the purposes for which it was intended. There are a number of lessons, to which I have referred, but I repeat that it is absolutely in our interest to see a strong eurozone because, among other things, that is where 40 per cent of the UK's exports go.

[Lord Elystan-Morgan]

My Lords, does not the Minister agree that the statements made by the German Chancellor and the French President at Deauville a month ago and thereafter were singularly unhelpful? I refer to the declarations in relation to the rate of interest and to tax levels in the Republic of Ireland and the demand that bondholders should bear a substantial part of the loss. Her Majesty's Government should be congratulated most warmly on having abjured any temptation to trespass on or to demean in any way Irish sovereignty and to accept those realities of geography, history and commercial intertwining which bind our two countries so closely together.

[Lord Sassoon]

I am grateful to the noble Lord for his remarks. I shall not criticise other countries for the running commentary that they have given on certain aspects of the developing situation, but the noble Lord gives me the opportunity to confirm that the UK believes in tax competition in Europe. We certainly have not been and will not be a party to some chorus telling the Irish how they should set their levels of corporate taxation, any more than we would want people to lecture us on how to set it.

[Lord Inglewood]

My Lords, I must first declare an interest, because the price of the beef cattle I sell has fallen by about £100 a head because of the turbulence in Ireland. Does that not show that this is not merely a matter of politics and economic theory; it is an episode which has a real bearing on the prosperity of people in our country? That should be at the centre of the Government's thinking about how to respond to the circumstances in which we find ourselves.

[Lord Sassoon]

I am very grateful to my noble friend and completely agree with his sentiments. It is always good to be reminded that our economy has an important agricultural component to it and that that is part of what the Government’s possible contribution to this package is helping to protect.

[Lord Martin of Springburn]

My Lords, I welcome the help that is being given to Ireland. I am mindful of the fact that, in the city where I was raised, many sons and daughters of Ireland came to be our teachers, to look after our elderly and to be our doctors. Many of the large construction projects, such as the hydro dams, were built by Irishmen who worked so hard and were away from home.

The Minister said that the interest rates will be worked out, but for every point on the interest rates there will be more hardship for the people of Ireland. When the Chancellor announces the interest rates, will this House and the other place have a say in them?

[Lord Sassoon]

Interest rates and the other terms of the package will be negotiated between the Government of Ireland, the IMF and those leading the European side of the negotiations, so they will not be the subject of discussion in your Lordships' House, except that any bilateral element in the package from the UK will be subject to primary legislation, so there will be an opportunity to consider the terms of any bilateral loan.

[The Lord Bishop of Chester]

Can the Minister help me resolve an ambivalence that I detect in his answers? He seems to be saying that it is vital to our national interest to support the eurozone and equally important to our national interest not to be part of it.

[Lord Sassoon]

That is precisely what I am saying. As was confirmed by my right honourable friend the Chancellor in another place, the Government are not going to take this country into the eurozone and, indeed, we are not going to make any preparations during the course of this Parliament to take us into the eurozone. I think that it is completely compatible with playing our part as an important part of the European economy to make sure that the eurozone is stable. I may be being thick, but I fail to see the contradiction in those two positions.

[Lord Foster of Bishop Auckland]

My Lords, the Government have done the right thing, and we support them, but now that they have become enthusiastic supporters of growth being a fundamental part of the solution in Ireland and in Europe as a whole, will they give a great deal more thought to how they can stimulate growth in the United Kingdom, as the new secretary of the CBI requested?

[Lord Sassoon]

My Lords, we have been giving it very considerable attention, which is precisely why the first series of actions of this Government was around convincing the world that we had a plan to deal with our deficit so that we did not find ourselves remotely in the position in which Ireland has regrettably found itself. That is the way that we have managed to keep interest rates low and the foundation of our growth policies. We have then gone on, whether in tax, capital expenditure through the spending review, the economic infrastructure, the attack on regulation or in other areas, to build a strong series of growth policies in this country.

[Lord Kilclooney]

My Lords, Ireland broke away from the United Kingdom and gained sovereign control over its taxation, interest rates and currency, but all these things have been thrown away. Even interference in its budget is now a requirement. There is now a great economic crisis in the south of Ireland, and that is bad news for us in Northern Ireland and in the United Kingdom. I therefore welcome the bilateral grant that we in the United Kingdom will be giving to support the present dire distress in the south of Ireland. However, one thing that worries me in a broader sense—it is not specifically about the Republic of Ireland—is whether when other countries in the eurozone get into economic difficulties, as has already happened in Greece and in southern Ireland, we are still going to be required to support them financially.

[Lord Sassoon]

My Lords, as I have explained in repeating the Statement, we take the situation in Northern Ireland extremely seriously, which is why my right honourable friend the Secretary of State for Northern Ireland and my honourable friend the Financial Secretary will go there later this week. As to the question of support for other countries in Europe, I will not give a running commentary on other countries and their economic conditions. But, as I have made completely clear this afternoon, the situation of Ireland is very different from any other country and our response has been commensurate with that.

[Lord Brooke of Sutton Mandeville]

My Lords, if it is true that relations between our two countries are the best that they have ever been, does my noble friend regard it as a happy conjuncture that we are in the situation where we can make the Statement we have made today in the interests of the old saying that a friend in need is a friend indeed? Will he also give any report on the behaviour of the Spanish and Portuguese markets during the course of today?

[Lord Sassoon]

My Lords, as I said in repeating the Statement, we have given our support for a possible contribution to a package based on a very hard-nosed assessment of what is in the interests of the UK economy. That it coincides with the fact that we have had a long history with Ireland is important, but it is purely on the assessment that it is in the interests of the UK economy that we have contributed to the possible package. As to what is going on in the other markets, I am afraid that, because I have been detained throughout the afternoon in your Lordships’ House, I have not been looking at them.

House adjourned at 5.41 pm.