Budget Responsibility and National Audit Bill [HL]

Lord Eatwell Excerpts

Wednesday 1st December 2010 Grand Committee

[Lord Peston]

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

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

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

[Lord Eatwell]

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

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

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

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

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

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

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

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

[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.

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[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.

[Lord Peston]

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

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

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Moved by

[Lord Eatwell]

10: Schedule 1, page 11, line 13, at end insert “, with the consent of the Treasury Committee of the House of Commons”

[Lord Eatwell]

A peculiarity of Schedule 1 as drafted is that the members of the committee who are required to have the relevant skills we have talked about are also required to obtain the consent of the Treasury Committee of the other place, whereas the non-execs are not. This is peculiar and unfortunate because, while there is a clear template against which to measure the members of the committee—they must have a suitable professional status within the economics profession, and especially within economic forecasting—the non-execs require a wider skill set. It would be inappropriate to spell out a particular skill set—even though my noble friend Lord Peston wants it in the Bill—because that is best assessed by the Treasury Committee and, if we wish to add it, the Economic Affairs Committee of your Lordships’ House.

What kind of things do we want? We want independence, experience, commitment, a clear interest in the issues at hand and an understanding—although not necessarily a high level of expertise—of the strengths and weaknesses of economic forecasting. We also want political independence, or at least political balance, within the structure of the non-execs. The Treasury Committee, which covers a multitude of sins, has the expertise to evaluate that kind of skill set. That is why Amendment 10 seeks to apply the kind of rigour and general assessment to the appointment of the non-execs as is applied to the appointment of the committee. I beg to move.

[Lord Higgins]

My Lords, I am a little worried about the remark “covering a multitude of sins” as I was chairman of the Treasury Select Committee in the other place for about 14 years—in fact, probably for most of the time that it has been in existence.

[Lord Eatwell]

If the noble Lord and the right reverend Prelate will allow me to explain, I was using the term in the same way as the Church of England covers a multitude of sins.

[Lord Higgins]

It will be interesting to know the Minister’s view on that one. I support the noble Lord in the view he has expressed. I welcome the fact that sub-paragraphs 1(1)(a) and (b) of Schedule 1 both require the Treasury Committee of the House of Commons to be involved. As I said at Second Reading, I think it is true to say that this is the first time that a Treasury committee in this sort of role has ever appeared in legislation. But like the noble Lord who moved the amendment, I am puzzled as to why the Treasury Committee should be involved in the case of the first two groups and not in the case of the third. It seems appropriate that it should be involved in all three. It is certainly appropriate that it should be involved in the appointment of the chairman, because the chairman plays a crucial role between the parliamentary side of things and the Executive nowadays, so that is very good.

I also remain puzzled as to why, under sub-paragraph (c) of Schedule 1, the two members are to be nominated by the OBR and then appointed by the Chancellor, whereas those under sub-paragraphs (a) and (b) are simply appointed by the Chancellor. No doubt the Minister can explain why the OBR should be in the nomination of the third group.

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[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.

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[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.

Amendment 10 withdrawn.

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[Lord Higgins]

My Lords, on one occasion when the Government that the late Iain Macleod was opposing accepted an amendment, his response was, “You don’t shoot Santa Claus”. Perhaps that is an appropriate reaction in this instance. I am delighted to hear what the Minister has said.

[Lord Eatwell]

Before the noble Lord finishes, I should like to comment. I really am having road-to-Damascus experiences today; I now think that this is rather important, although I did not when we started. Yes, the OBR is moving out, but the point is that this is a Bill to establish that body for the long term. The Minister has said that it is up to the OBR to decide where it goes. Let us suppose that it decided to go back. Would that be acceptable? The answer, of course, is no. Having felt that the noble Lord, Lord Higgins, had tabled an amendment that had been superseded by events, I now realise that he has spotted a rather important point.

[Baroness Noakes]

My Lords, before the noble Lord, Lord Eatwell, gets too carried away with joining in with any opposition to the Bill, I want to point out that the Treasury is not a place, so the drafting of my noble friend’s amendment, while appearing Santa Claus-like, is in fact defective. There is a Treasury building but the Treasury could be anywhere. I think that he means “located in the same premises as Ministers and officials of the Treasury”.

We can take this too far, though. There might be circumstances in future when it is perfectly sensible for space in the same building as the Treasury is located to be occupied by the OBR. If the Treasury shrunk in size to proper proportions again and did not occupy as much of its building, some of it could be let out. What would be wrong with having the OBR even closer to save on shoe leather? We must not get carried away with this amendment.

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[Lord Burns]

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

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

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

[Lord Eatwell]

This is a tricky issue but the balance has been struck by a combination of the noble Lord, Lord Turnbull, and my noble friend Lord Myners. If the staff of the OBR is simply a rotating group of Treasury officials, the appearance of independence, which is so important to the OBR, will be endangered. We should remember especially the crucial independence of method set out in Clause 6(2). If it is a rotating group, it will carry with it the method that it brought from the Treasury. On the other hand, I recognise that we do not want to limit the career prospects of staff or the quality of staff; we want to get the best people we possibly can.

The Government cannot be complacent about this. The OBR will undoubtedly be under close scrutiny and it will not do for it to allow employment to be a revolving door connected to the Treasury. It is up to the Government to come up with an answer. If they want the OBR to have independence, they will have to find a solution to the staffing problem. I am afraid I do not have it; if I did I would offer it. Given its independent role under Clause 6(2), it is clearly a problem. However, I entirely agree that we should not in any way endanger the career prospects or the quality of the staff of the OBR.

[Lord Higgins]

My Lords, one could look worldwide and still fail to find better experts on the practical implications of this amendment than the noble Lords, Lord Burns and Lord Turnbull. There are obviously considerable practical problems and the Government have to face up to the fact that if these are insurmountable, then the argument that the previous arrangements on forecasting were biased and subject to ministerial interference and so on will be difficult to sustain if precisely the same people are making the forecasts now as were making them before.

The Minister shakes his head and I look forward to reassurance from him. However, one cannot simply let it rest and say that it does not matter because they are the same people. Given the overall intention of the creation of the OBR, one has the political problem that it should be seen to be independent.

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Moved by

[Lord Eatwell]

16: Schedule 1, page 15, line 18, at end insert—
“( ) The budget for the annual operations of the Office for Budget Responsibility shall be published, and be available for scrutiny by the Treasury Committee of the House of Commons.”

[Lord Eatwell]

My Lords, a well known and effective method of controlling any nominally independent body is by controlling its budget. Under this Bill, the budget of the OBR is clearly controlled by the Treasury. In Schedule 1(15)(1), we are told:

“The Treasury may make to the Office such payments out of money provided by Parliament as the Treasury considers appropriate for the purpose of enabling the Office to meet its expenses”.

If the OBR were not behaving in a manner that suited the Government, perhaps by undertaking a number of extra studies that cast the implications of government policies in an unfortunate light, the easiest way to discipline those independent-minded souls without going into any fuss about independence would be to cut their budget, forcing them back to their core function. Control of the budget is an important means of controlling an organisation.

All that the amendment proposes is that the budget be published and made available for scrutiny by the Treasury Committee of another place. That would give the Treasury Committee the opportunity to have its say on whether any inappropriate limitations were being placed on the operations of the OBR. Amendment 16 provides the scope for the Treasury Committee to act as the financial champion and protector of the independence of the OBR.

Noble Lords may have noticed a theme running through the amendments that my noble friends and I have proposed. We are attempting to enhance the independence of the OBR, and I am surprised that the Minister is resisting that attempt. I beg to move.

[Lord Higgins]

My Lords, I presume that the Minister will confirm whether the budget is going to be published. If it is, clearly the Treasury Select Committee could have a look at it if it wished. It seems more likely, however, that it would be examined by the Public Accounts Committee rather than the Treasury Committee, having already been looked at by the Comptroller and Auditor-General.

[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.

[Lord Higgins]

Some years ago, the Comptroller and Auditor-General and the PAC agreed that the Comptroller and Auditor-General could carry out value-for-money examinations. So it could do that.

[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.

[Lord Eatwell]

I am grateful to the noble Baroness. She has given me some ideas to think about. I will go away and think about these things. It would be nice if we felt that the Government were going to do some thinking as well. We have an important issue here, which we will perhaps relate to the annual report. That is an interesting idea and I will look up the debate to which the noble Baroness referred. In the mean time, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Schedule 1 agreed.

--- Later in debate ---

Moved by

[Lord Eatwell]

19: Clause 4, page 2, line 20, at end insert “in the light of the Government’s economic policy”

[Lord Eatwell]

As Amendment 19 bears on the debate we have just had, I thought that it would be entirely appropriate to go beyond our target and deal with it so that we can tuck it out of the way. Amendment 19 is intended to make clear exactly within what context the issue of sustainability might be considered. The term “sustainability” has no meaning in and of itself, as we have just discussed, unless we simply define it as “not spiralling out of control”, which I think everybody would accept as perfectly reasonable but somewhat trivial.

The reason that it has no meaning in and of itself is the interaction of the public finances with what is happening in the rest of the economy. It was very useful to see the first attempt at a discussion of sustainability by the OBR in its recent report. As I pointed out in my remarks on the Autumn Statement, the definition of sustainability which the OBR presents in that report is a surplus of 2.1 per cent of GDP on the Budget. I remarked then, and I remark again, that that is completely unsustainable. It is unsustainable because a Budget surplus of 2.1 per cent, with the normal balance of payments position of the past 10 years or so of minus 1 per cent of GDP, would imply that the private sector was accumulating debt at a rate of 3.1 per cent of GDP. That is unsustainable for the private sector.

I have already had some correspondence with Mr Chote on the matter. The OBR got that wrong, and it shows how difficult it is to encapsulate the notion of sustainability without referring to the general economic context. Let us take the example of Ireland, which was raised by the noble Lord, Lord Higgins. In 2007, prior to the crisis, the Irish Government were running virtually no deficit and had a debt to GDP ratio of 12 per cent, one of the lowest in the developed world. Yet they were pursuing an economic policy, with respect to what they were committing their banking sector to accumulate, that was unsustainable. If you just looked to the Government, everything looked great. They were pursuing exactly the policies that one would define as sustainable. If you took it in the context of the economic policy and the economy as a whole, it became unsustainable; just as the OBR has made the mistake in its report—I know that it will change it because it has good economists who will see the point very quickly—of pretending that a government surplus is the basis of sustainability.

Let us just look at the history: Governments have not had a surplus for 200 years but they have continued perfectly well. Indeed, it is important for the Government to run a deficit; otherwise there will be a major shortage of government bonds for pension funds and the insurance industry. In fact, our financial sector would be wrecked if the Government did not run a deficit. The Government can run a relatively small deficit, which will see the level of debt to GDP stable, perhaps even falling. That would be entirely sustainable and would not spiral out of control.

I suggest that introducing the phrase,

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

solves the Minister’s problem. It says that we will look at sustainability in the round and it creates that notion of “in the round” for the OBR to work on. Once again, we have managed to solve a problem for the Minister, and I hope that he recognises that a solution has been provided for him. I beg to move.

--- Later in debate ---

[Lord Eatwell]

Perhaps I may follow up that point. If Clause 5(3) is supposed to in some sense incorporate the notion of government economic policies and the definition of sustainability, it is obscurantist to an extreme degree. The subsection does not say that, and normal reading would not reflect that. It is a sort of philosophical point suggesting, “Don’t listen to what I say; listen to what I mean”.

I must say that what is written here does not in any common-sense manner refer in a constructive way to the point that we have been discussing. It is nonsensical to suggest that the clause provides the qualification that is required. If by some extraordinarily convoluted legal argument it does, there is an extreme lack of clarity here, and it is the Government's responsibility to make this clear. There is a severe deficiency of drafting in the Bill if the clause purports to refer in a constructive way to the matter that we have been discussing.

--- Later in debate ---

[Lord Newby]

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

[Lord Eatwell]

Absolutely. We have just heard clarity provided from this incredibly obscurantist piece of drafting. This subsection is a negative. It says:

“Where any Government policies are relevant … the Office may not consider”.

You are taken to the negative. The verb with operational significance in that sentence is “may not”. The noble Lord, Lord Newby, has hit the nail on the head. If one really wants to achieve what we are all trying to achieve, this subsection should be split into two with Clause 5(3) saying, “Take these things into account” and a new Clause 5(4) saying, “Don’t mess around looking at other people’s policies”.

[Lord Higgins]

When we consider my amendment which refers to Clause 5(3), I shall make a quite separate point. The noble Lord, Lord Newby, has essentially encapsulated what he wants to say. The problem for the Government is that we are saying that the OBR has to take into account the Government’s economic policy, whereas the noble Lord’s letter—and the debate on that lasted for an hour and 20 minutes on our first day in Committee—was concerned with saying that we must not under any circumstances allow the OBR to look at economic policy.

--- Later in debate ---

[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.

Amendment 19 withdrawn.