Budget Responsibility and National Audit Bill [Lords]

David Rutley Excerpts

Monday 14th February 2011 Commons Chamber

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

In this debate on the Bill and the Office for Budget Responsibility, I would like to focus on the word “responsibility”. Interestingly, Members in other parts of the House have focused on the downgrading of the growth forecast from 2.6%, to 2.3%, to 2.1% and possibly lower, but at no point has it been said that this allows the Chancellor to ensure that we have a Budget that is based on facts rather than on what he would like the growth figures to be. That is the problem of previous years that led to a bunker scenario.

[David Rutley (Macclesfield) (Con)]

I wonder whether my hon. Friend has noticed that the Institute for Fiscal Studies has said:

“If an OBR had been in existence over recent years it might have discouraged Gordon Brown from persevering with fiscal forecasts that most independent analysts thought over-optimistic from 2002 onwards”.

[Alec Shelbrooke]

I am most grateful for my hon. Friend’s intervention, which makes my point. If the OBR had been there in the past, it would not have been possible to proceed with the bunker mentality that I mentioned. Alternatively, the Chancellor could still have moved forward with the same forecast, but everybody would have known exactly where the blame lay and got rid of the arguments that we hear time and again whenever we talk about the horrific financial mess that this country is in—the chorus from Labour Members saying, “It’s the banks, it’s the banks.”

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[David Rutley (Macclesfield) (Con)]

Like other hon. Members, I will focus my remarks on the measures that will put the Office for Budget Responsibility on a statutory footing, where it needs to be. I will talk about how important it is to take forecasting out of the Treasury and to give Parliament a greater role in maintaining the independence of the OBR, which will be vital, as everybody has said.

Above Bollington stands one of the most loved landmarks in the Macclesfield constituency: White Nancy. This unique, brilliant white summerhouse was built by the Gaskell family in 1815 and it stands proudly on top of Kerridge hill. Some think that it was built to commemorate the battle of Waterloo. Whatever the reason, White Nancy is today a well known and trusted reference point. When someone sees it, they know exactly where they are. That is what I hope the OBR will become in the landscape of the UK economy.

The Economic Secretary mentioned several reasons for the creation of the OBR, and spoke of the importance of creating it at this moment in time. I think that it will provide better forecasts, address the “judge and jury” issue that we have heard about and effectively hold Governments of all persuasions to account. That is exactly what is required.

To begin, I will give a few thoughts on better forecasts. I was reminded recently of an observation made by the American economist John Kenneth Galbraith:

“The only function of economic forecasting is to make astrology look respectable.”

I am not a great fan of his economics, but his one-liners were pretty good. Like many Members, I accept that economic forecasting is not a precise science. However, it is vital that our expert forecasters are allowed the objectivity and independence that are needed to do the best possible job. They must be able to look into their crystal balls outside the Treasury building and free from Treasury influence. The ability to recruit economic talent from outside the Treasury will be a great help. I believe that the OBR is well placed to provide better forecasts.

The creation of the OBR can address the fundamental conflict that we have seen in successive Governments of the Chancellor and the Treasury being both judge and jury, through setting fiscal policy and making the forecasts for the economy and public spending. By their nature, economic forecasts are based on assumptions, opinions and judgments. The temptation for Treasury Ministers to make a judgment or prepare a forecast that helps the Government of the day presents a clear challenge to the credibility of the forecasting process. The OBR is an important and positive step in removing that temptation.

I was struck by Lord Turnbull’s response to me on this subject when I served on the Treasury Committee some months ago:

“What happens is that there’s a sense of giving yourself the benefit of the doubt, of wishful thinking. That is what the OBR is there to correct.”

He went on:

“The OBR is important because it is an antidote to and a constraint on wishful thinking. It will bring more rigour, and it has already begun to do so”.

When I asked him more about the wishful thinking during his time at the Treasury, he said:

“I think that there was wishful thinking all the way through. If you had experienced 60 quarters of uninterrupted growth, it wasn’t surprising that you tended to think that somehow something fundamental had changed.”

That is exactly the type of thinking that the OBR has been designed to review, scrutinise and challenge, which is an urgent priority.

The OBR can provide better forecasts, it will tackle the judge and jury dilemma, and it is empowered to hold this Government and future Governments to account. That will be a vital task at this challenging time and for future generations. So what of the OBR’s priorities? In its short life, it has demonstrated its independence, the professionalism of its personnel and the high quality of its output. In its first forecast on the economy back in June, it brought some realism back to the growth forecasts. It was pretty clear that those published by the previous Government in the run-up to the election contained too much wishful thinking. The markets were openly sceptical, which in itself was an unsustainable position. In that sense, the OBR has scored a notable success already by helping to restore confidence in the forecasts for public spending and the performance of the UK economy.

It is vital that we build on that promising start and put the OBR in an unrivalled position. I was pleased to see the recent publication of a report by the OBR that detailed how it sets out to co-ordinate its activities with other Government Departments to produce fiscal forecasts, and the processes that it will follow. That transparency will help further strengthen the organisation and its standing. Its chair, Robert Chote, said recently that he wanted the process of fiscal forecasting to be as accessible as possible. In his words, he wants to

“let people see inside the forecasting sausage machine”.

That is not quite how I would have put it, but I agree with the sentiment.

Beyond the transparency and accessibility of the OBR, which is pivotal, it is essential for it to become a respected and trusted reference point. That is a big ambition that will require the highest standards to be maintained, and constant vigilance will be needed to ensure that we get the OBR where it needs to be.

Having served on the Treasury Committee, with hon. Members who were present earlier in the debate, when the creation of the OBR was debated and key officers were appointed, I commend the work that the Committee undertook at that time and the role that it continues to perform today. I also wish to take the opportunity to commend the Chancellor for his decision and for the inclusive approach that he adopted during the creation of the OBR. By giving the Treasury Committee a meaningful role, he has gone a long way towards empowering Parliament and demonstrating the need for the OBR’s independence. That established from the very start its credibility as an independent body and will help build that credibility in Parliament. By giving the Committee the power of consent over appointments and dismissals, the Chancellor is giving Parliament greater power. The Committee also has the important power to carry on vetting those who are appointed, as it did last year and will continue to do. It is important that the OBR has the ability to prevent Ministers from removing people who might be perceived as being a bit too objective for their liking.

The Government have gone further and even given the OBR the power to submit to the Treasury Committee its own additional estimates memorandum, which will enable it to undertake scrutiny of funding for the OBR. As the Committee’s report set out clearly, it will take a much stronger role in observing the OBR’s work. It states that

“it is vital that it commands confidence across party boundaries. We will take evidence from the organisation 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 nonexecutive directors to report any concerns they have to us. Only if it is independent will the OBR be successful.”

There is a clear role for the Committee. It has the OBR in its sight and will continue to involve the OBR in its important work.

Some Members, such as the hon. Member for Glasgow North East (Mr Bain), mentioned international comparisons, and other countries have indeed had bodies similar to the OBR established for decades. One of them is the Central Planning Bureau in the Netherlands, which he mentioned. That body has responsibility for scrutinising not only Government but opposition spending plans. I am sure that Labour Members’ heartbeat fluttered briefly as they thought about the implications of that, but perhaps if the CPB operated in the UK it would not have too much work on its hands right now. We will see what develops on the Opposition Front Bench over the decades ahead. The serious point is that the OBR could learn from such international comparisons. A huge amount of learning can be done from other countries, and I hope that the OBR will examine them in developing its functions and work in the years ahead.

The permanent creation of the OBR is an overdue step. It will bring more transparency and greater confidence to economic forecasts, and it has already begun to build a solid reputation as an objective and authoritative voice as well as gaining respect in all parts of the House. The Bill represents an important structural change in how the Treasury works. It will take the politics out of economic forecasting and give Parliament greater powers of scrutiny. Personally, I want to ensure that the OBR becomes the trusted, respected reference point that I talked about earlier, and I will do all in my power to support it in that work. This country needs it. We must put such institutions in place to ensure that our public finances are never allowed to get into this mess again.

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[Stephen Williams]

I thank my hon. Friend for that intervention.

Predictions and forecasting are at the heart of the Bill. I slightly disagree with my hon. Friend the Member for Cities of London and Westminster (Mr Field), my coalition colleague, who has now gone off to his black-tie dinner, because the crash—if not its scale—was forecast by my right hon. Friend the Member for Twickenham. I remember him being derided and sneered at in the House at the time, including by the hon. Member for Wallasey (Ms Eagle), who today led for the Labour party.

I welcome the setting up of the OBR, and particularly the appointment of Robert Chote from the Institute for Fiscal Studies as its first permanent chair. I am sure that all hon. Members have cited IFS reports in support of our policies at various times, and that we have all been on the receiving end of its critiques, which are not always welcome. Nevertheless, everyone recognises that those reports were arrived at independently, and therefore that they had authenticity and credibility about them. I also welcome the appointment for five-year terms of Mr Chote’s fellow board members and the ongoing Treasury Committee scrutiny, of which my hon. Friend the Member for Macclesfield (David Rutley) spoke. As we heard, the Bill is not a panacea for dealing with economic ills, but I am sure that the OBR will none the less restore credibility to our statistics and give a sound basis for decisions.

The second part of the Bill, which has not been mentioned much, deals with the National Audit Office. As I have mentioned Disraeli, I will mention in balance Gladstone, who set up the NAO. All Members of Parliament will recognise that the reports produced by the NAO are excellent and well informed across the range of policy issues. As the hon. Member for Stretford and Urmston (Kate Green) said, it is the role of the NAO to review the impact of Government policy especially in financial areas, and to examine whether money has been spent efficiently according to the original remit of the policies. Although the NAO formally reports to the Public Accounts Committee, of which I was briefly a member in the last Parliament, its reports and its work are fundamental to the operation of the House of Commons itself.

I welcome the statement made by the board of the NAO and the professional qualifications now held by some of its board members. I remember going to a briefing by the NAO not long after I became a Member of Parliament and being astonished by the lack of financial qualifications of many people in the civil service—I shall avoid looking in their direction—who none the less managed the purse strings of billions of pounds of public money. Professional qualifications should also be rolled out around Departments.

[David Rutley]

As hon. Members have said, one of the opportunities provided by the OBR will be more expertise from people outside the Treasury, who will put their views, thoughts and experience to work on forecasting. Does my hon. Friend agree?

[Stephen Williams]

Indeed, I do agree and the OBR as it develops will be able to draw on the expertise in the Treasury, although its forecasts must be its own, not the Treasury’s. Over time, the OBR will develop its own in-house expertise, although it will hopefully not grow into too large a quango—if we are still allowed to use that word.

The Bill is an important hallmark of coalition Government. It shows that the Government are interested in transparency and evidence-based policy making, as well as in listening, especially to advice. It will certainly provide confidence in our national statistics and economic forecasts, underpinning the Government’s overriding aim of restoring confidence and stability to our national economy and public finances.