Budget Responsibility and National Audit Bill [HL]

Lord Higgins Excerpts

Monday 29th November 2010 Grand Committee

[Lord Eatwell]

My Lords, before we start our discussion of the Bill, let me say how grateful I am to the Government Chief Whip for postponing the beginning of this Grand Committee until now. It would have been impossible to have prepared a reaction to the Autumn Statement in time without her indulgence, for which I am most grateful.

There is an inconsistency in the Bill, which Amendments 1, 3 and 4 in my name are designed to correct. The inconsistency derives from the fact that the charter, which is referred to in Clause 1, is supposed to provide guidance as to the main duties outlined in Clause 4. Clause 4 lists those duties as sustainability, fiscal forecasts and economic forecasts, yet Clause 1 calls for guidance only on fiscal and sustainability issues; it makes no mention of economic issues. That is the core inconsistency.

The issue to be addressed is rather more than formal, as sustainability issues and, indeed, fiscal balance are not independent of economic performance. For example, it is quite possible to have a sustainable very small state or a sustainable very large state. Equally, it is possible to have a sustainable stagnant economy and a sustainable dynamic economy; in fact, I am sure that that is what the Minister would claim the coalition is creating. More specifically, different assumptions about the performance of the world economy as a whole will impact on the fiscal forecast and on any concept of sustainability. If we are to provide consistent advice in the charter to the Office for Budget Responsibility under its duties in Clause 4, the amendments in my name, which would introduce the word “economic” into the clauses, should be accepted.

Moreover, the charter introduces a fourth element, which is the promotion of “intergenerational fairness”. It would be helpful if the Minister could, when he sums up, define exactly what this means. Perhaps I could help by setting out what it cannot mean. It cannot have anything to do with the fiscal balance as such, as the size of a deficit defines the content of redistribution between different groups of current and future generations of UK citizens—essentially, redistribution between taxpayers and lenders. It certainly has nothing whatever to do with redistribution between generations. What it can mean is that there is some impact on investment and the growth path of the economy, but that is very much economic policy—the very dimension that has been left out of Clause 1. That is why I want to introduce the word “economic” into Clause 1. I believe that this is exactly the point that my noble friends Lord Peston and Lord Barnett make in their amendment in this group. To make this entire story consistent across Clauses 1 and 4 and the reference to the promotion of intergenerational fairness, it seems imperative to introduce the word “economic” in the places suggested in the amendments. I beg to move.

[Lord Higgins]

I am having some difficulty in tracking down the reference to intergenerational transfers. Am I right in thinking that the wrong line is given in the noble Lord’s first amendment?

[Lord Eatwell]

It is in the charter, which is referred to in Clause 1, and I shall attempt to find it for the noble Lord. I have a fresh copy here rather than my marked-up copy. Paragraph 3.1 of the draft charter states that an objective is to “promote intergenerational fairness”.

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[Lord Myners]

My Lords, I support my noble friend Lord Eatwell. I think that I need do no more than cite our debate a few minutes ago in the Chamber when the Minister repeated the Statement on the OBR made earlier today in the other place by the right honourable Chancellor of the Exchequer. The central emphasis of that Statement was the economy. It would seem therefore that the Government intend to use the OBR and the charter in support of it to give confidence to their economic projections. I therefore suggest to the Minister that no harm would be done, and considerably greater precision would be achieved, if the words proposed by my noble friend were inserted in Clause 1.

[Lord Higgins]

My Lords, am I wrong in thinking that the amendment refers to line 6 and not line 5 of the Bill? Be that as it may, no doubt we can sort it out if it is wrong. I have great sympathy with the view put forward by the noble Lord, Lord Eatwell. We shall see what response we get from the Government. Perhaps we may also have from the Government a little clarity with regard to the charter for budget responsibility, since it is described as a draft. Are we to understand that the Government will amend it in line with the comments made by this Committee or will we be able to amend it at some later stage more formally?

An interesting point was made about “intergenerational fairness”. I understand that we must be concerned with fairness generally, but we should realise also that the sudden introduction of this expression reflects a considerable change of view in the Treasury from previous years. It is of course possible for us to consume in this generation and pass on a lesser inheritance to future generations. However, if we are to appraise intergenerational fairness, we need not simply a government balance sheet, on which we have made a little progress, but a national balance sheet, which successive Governments have hitherto failed to provide. If the relevant paragraph is to have any credibility, we need further data. It would be helpful if the OBR could take a first shot at a national balance sheet. The argument that we should widen the charter a little from relating merely to implementation of fiscal policy seems reasonable, but I look forward with interest to hearing what my noble friend the Minister has to say.

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[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.

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[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 Higgins]

I shall try to speed up the proceedings in the light of what the noble Lord, Lord Barnett, has said. We have a specific amendment to the Bill and the Minister can say one of three things. He can say: “I accept it and will table an amendment at a later stage”; “I do not accept it for the following reasons and we will return to the matter if we wish at the next stage”; or, “I am not sure, so I’ll think about it and return to it at the next stage”. I am not in the least clear whether he proposes to accept, reject or think about the amendment.

[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.

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[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.

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Moved by

[Lord Higgins]

5: Clause 1, page 2, line 4, at end insert “and the House of Lords”

[Lord Higgins]

This amendment is grouped with Amendments 6, 8 and 35, which are rather more sophisticated than my amendment. 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”,

and my amendment adds “and the House of Lords”. The variations on that suggest the Economic Affairs Committee of your Lordships’ House and so on. It would seem appropriate that the charter should be considered by a resolution in each House and, if we have any serious problem at that stage, we ought to be able to express a view one way or another. It is a somewhat draconian measure because it would presumably mean that the charter was or was not accepted, but over the years, and despite the row we had on the Floor of the House this afternoon, there increasingly seems to be a tendency for your Lordships’ House to be more involved in affairs involving money. Therefore, I hope that the Minister will accept this amendment.

[Lord Barnett]

My Lords, I hope this group will last only a very few minutes and that the Minister will accept the amendments. As we debated this afternoon on the Floor of the House, this is not a money Bill. I do not think the Speaker in any way thought about certifying it as a money Bill. Every Bill costs a few bob, but in no way could this be described as a money Bill. I assume that the Minister is going to say that he will accept the amendments. It is quite straightforward: there is no reason whatever why the House of Lords and its Economic Affairs Committee should not be involved in looking at what the OBR is saying. When I was on the Economic Affairs Committee and the Select Committee on the Monetary Policy Committee, my noble friend Lord Peston was in the chair, and we had the Governor of the Bank of England, the Chancellor and almost everybody else there. I can think of no good reason for the Minister having the word “resist”. I hope he will not use it because there is no reason to refuse these amendments. I hope he will support them.

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[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.

Amendment 5 withdrawn.

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Moved by

[Lord Higgins]

7: Clause 2, page 2, line 14, at end insert—
“( ) The Treasury shall not make economic forecasts covering the same areas as those of the Office for Budget Responsibility.”

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[Lord Higgins]

In moving the amendment, I think that it would be helpful to discuss Amendments 21, 33 and 38. I shall dispose of Amendment 38 immediately as it is rather oddly grouped with the other amendments. It refers to leaving out “paragraph (c)”. That part of the Bill says that the OBR must,

“publish the report … lay it before Parliament, and … send a copy of it to the Treasury”.

I tabled the amendment as it seems rather absurd if the office has to publish and lay the report before Parliament that it should need to send a copy to the Treasury. We could make a substantial saving in public expenditure on postage by eliminating that and I hope that my noble friend will accept that amendment.

Amendments 7 and 21 take a diametrically opposed view to that expressed by the noble Lords opposite in Amendment 33. Amendment 7 states:

“The Treasury shall not make economic forecasts covering the same areas as those of the Office for Budget Responsibility”.

There is a case for including that in the Bill because, otherwise, after going through all the expense of the OBR, we will find the Treasury still duplicating it unnecessarily. I hope that my noble friend can accept that amendment.

Amendment 21 is an important amendment dealing with the forecasts and suggests that we should insert,

“which are agreed with the Bank of England; the agreed forecasts will then be used both by the Treasury and the Bank of England”.

If our economy is not to be managed in a totally schizophrenic manner between the fiscal and monetary side of things, it would be quite absurd if the two bodies will not use the same forecasts. Otherwise we are bound to end up with a situation where monetary policy goes one way and the forecast on which the decisions are based may be quite different from that of the Office for Budget Responsibility. That seems an eminently sensible suggestion. It is categorically contradicted by the amendment in the name of the noble Lords, Lord Peston and Lord Barnett, which says that the,

“Office must always act independently of the Monetary Policy Committee of the Bank of England, especially in regard to its forecasts”.

I do not think that the Bank of England can have one set of forecasts and the Treasury another without there being some risk that economic policy is in conflict between monetary and fiscal policy. I beg to move.

[Lord Turnbull]

My Lords, I speak almost in direct contradiction to the noble Lord, Lord Higgins. The current draft of the fiscal framework says:

“The Government intends to adopt the OBR’s fiscal and economic forecasts as the official forecast of the Budget Report. The Government retains the right to disagree with the OBR’s forecasts and, if this is the case, will explain why to Parliament. The Treasury will continue to maintain the necessary analytical and macroeconomic expertise to provide on-going advice to the Government”.

I would say that that is absolutely spot on and what the relationship should be. Treasury Ministers have the ultimate accountability and should, if they feel it essential, be able to state their view and then justify it in a very important area, which is different from monetary policy. They take fiscal policy decisions; they do not take monetary policy decisions. This is the correct formulation and I hope that it will be supported. The Treasury will, of course, need to maintain a separate apparatus. If the entire forecasting apparatus were transferred to the OBR it would be necessary for the Treasury, for all sorts of other purposes—if only to answer questions from Parliament—to retain some apparatus. Then you would get unnecessary duplication.

On the question of whether the Bank and the OBR should agree a common forecast, it is surprising that someone from the Conservative Party is suggesting a monopoly. I think that the element of competition is important and, if the two forecasts differ, we ought to know why. Parliament, the EAC and its equivalent committee, the Treasury Select Committee, should examine why the two bodies have different views, rather than try to suppress them and coerce them into some kind of lowest common denominator. Therefore, I am not attracted at all to this group of amendments and I think that paragraph 3.7 of the draft charter is exactly where we should be.

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[Baroness Noakes]

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

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

[Lord Higgins]

Perhaps I may intervene for a moment before the Minister replies. Amendment 21 suggests that there should be a discussion between the Bank and the Treasury to agree the forecast. The noble Lord, Lord Turnbull, says that we want competition and so there may be two separate forecasts. That is fine but the two ought to be reconcilable, and in any event there should ultimately be a set of agreed forecasts which form the basis for the Government taking action. I do not think that you can have one set of policies on the monetary side being made on the basis of one forecast and fiscal decisions being made on the other. So far as concerns the point made by my noble friend Lady Noakes, it seems that the whole object of this exercise is to say that the Treasury shall not have its own forecasts and that the forecasts should be independent. However, I look forward to hearing what the Minister has to say.

[Lord Barnett]

I do not agree with the noble Lord, Lord Higgins, on Amendment 21 because I do not see why the Treasury and the Bank of England should necessarily agree. Perhaps I may make one or two points about the previous replies that we have heard from the noble Lord, Lord Sassoon. He said that amendments are unnecessary because the powers are already in the Bill. Although they are unnecessary, equally one could say that accepting the amendments would do no harm to the Bill, as they would only be repeating what is in the Bill. He also made the case for reserving the power for the Commons—at least he has given us a reason for rejecting an amendment. I disagree with him. I reserve the right to consider the matter on Report because I see no reason why the House of Lords should not consider these matters.

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[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.

Amendment 7 withdrawn.