Budget Responsibility and National Audit Bill [HL]

Lord Myners Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Myners]

My Lords, I will confine my comments to the Bill’s first 10 clauses, which refer to the Office for Budget Responsibility. Depending on the answers that the Minister gives, I may or may not be minded to propose amendments for the Committee stage. Clearly, a particularly important answer will be that to my noble friend Lord Eatwell’s suggestion that the Bill be divided and that the OBR part be subject to proper pre-legislative scrutiny.

I am broadly supportive of the intention behind the first 10 clauses, but I believe that the critical question must be around the independence of the Budget Responsibility Committee. As noble Lords have already noted, there is no reference to independence when describing the role and work of that committee. The OBR committee got off to a wobbly start—assumptions about the forecast for the economy were changed without full and proper disclosure and data were released early—but the fault, in my view, lay not with the members of the interim committee of the OBR but with the politicians who chose to use the OBR in the way that they did. That said, the Government have recognised the need to work hard to repair the damage done to the concept of the OBR, including by involving the Treasury Select Committee in the appointment of members of the OBR and in reviewing their resignations as well as in the appointment of what appears to be an excellent chairman of the committee of the OBR.

The tests that need to be set for the committee of the OBR relate to its independence, the transparency of its processes and the professionalism or objectivity of its work. It is clearly important that the committee of the OBR should be as independent of the Treasury as possible while recognising the reality—as described by the noble Lord, Lord Turnbull—of the need to work closely with people involved in the preparation of budgets and economic forecasts within the Treasury. The leadership and the membership of the committee are critical in that respect, as are the location and staffing of the OBR. I am delighted to see that the OBR is moving to premises outside the Treasury; I hope that at all times the staffing of the OBR will also be appropriately independent of the Treasury.

The independence of operations is covered in Clause 6(3), which deals with the processes of the committee of the OBR in respect of the guidance issued under the charter. My noble friend Lord Eatwell is absolutely right that there is considerable scope for mischief and hazard around the guidance process that is envisaged and the way in which the OBR is circumscribed. Clearly, the guidance given could potentially seriously limit the work and independence of the committee of the OBR. Indeed, Clause 6(3) seems to override the requirement under Clause 5(2) that the Office for Budget Responsibility—and, presumably therefore, the committee—should perform its work “objectively, transparently and impartially”. Perhaps, to be complete, that provision should also state, “but subject to any limitations that the Government of the day might wish to place in respect of those three criteria under the guidance that is issued”.

The Chancellor has described the OBR as creating a rod to beat his own back, but I suggest to the Minister that it will be less a rod than something that could be used gently to tickle the Chancellor if the guidance provided under the charter should be such as to limit the freedom of the committee. I do not believe that that is the Government’s intention, so I suggest that, prior to Committee stage, the Minister look again at the wording of the Bill. To his great credit, the Minister has shown a willingness in previous debates to look at the drafting of Bills, to listen to what the House says and to bring forward his own amendments—I think in particular of the Terrorist Asset-Freezing etc. Bill—so I hope that he will look at the way in which, in the hands of a different Government, the proposed charter and guidance could be used severely to limit the operations of the committee of the Office for Budget Responsibility.

I am particularly keen to hear from the Minister whether, under his interpretation of that wording, the committee of the Office for Budget Responsibility would be free to launch reviews on its own initiative or whether such reviews could be launched only with the prior approval of the Treasury and whether, if the OBR launched such reviews, it would need first to discuss their contents with the Treasury before they were published. As the Bill stands, I do not think that the committee of the OBR can be described as independent by virtue of Clause 6(2) alone, particularly to the extent that that might be inconsistent with Clause 5(2).

It would also be helpful if the Minister, in looking again at the drafting of the Bill before Committee stage, could reflect on the meaning of the term “sustainability” as used in the Bill. It seems to me that sustainability can be achieved at a number of different levels, particularly in relation to the size of the state. A sustainable fiscal policy might relate to a small state and a small government, but a sustainable approach might also relate to a much larger state and government. There is a danger that, in opining that a particular outcome is sustainable, the OBR might be construed as saying that that is the only sustainable outcome. My view is that there are multiple sustainable outcomes. There is some risk in suggesting that there is a simple test of sustainability that only one configuration of expenditure, tax and borrowing is capable of meeting.

Clause 4(3) refers to a need for a review of “fiscal and economic forecasts”, which is entirely welcome and has my full support. However, noble Lords previously have spoken about the language in which financial forecasts are proposed. We know from the Chancellor of the Exchequer’s recent Statement on the comprehensive spending review and from previous Statements by previous Chancellors of the Exchequer that there has been an increasing tendency to give partial, unbalanced or incomplete Budget Statements and Statements of a similar nature. I urge the Minister to add to the roles of the OBR by requiring it to comment on the completeness, objectivity and balance of such Statements. In the CSR Statement, we saw the right honourable George Osborne mixing up real data with cash data, inflation-adjusted data with non-inflation adjusted data and percentages with absolutes, all of which undermines the credibility of the budget process. We have seen how Sir Michael Scholar at the UK Statistics Authority has improved the presentation of statistics by Government; we need something similar in respect of Government financial statements.

Transparency is another important element in the effectiveness of the committee of the OBR. I remember that, when the House debated the establishment of a council for financial stability, the noble Baroness, Lady Noakes, was such a great believer in transparency that she wanted just about every meeting to be appropriately minuted and for those minutes to be published. I thought then—and even more so since I have had a chance to reflect on the matter away from the hurly-burly of office—that was rather a good idea. Will the minutes of the meetings of the committee of the OBR be published?

Thirdly, and finally, I come to what I might describe as professionalism, on which I believe a number of issues arise. First, on resourcing, we could clearly create the committee and the Office for Budget Responsibility but then under-resource the body so that it was incapable of doing the duties that we expected. It would be beneficial if paragraph 14(1) of Schedule 1 included an additional requirement that the chairman of the committee of the OBR should each year certify the sufficiency of its resources and the adequacy of its independence from the Treasury. That would give considerable comfort.

On the issue of its forecasting performance, I find the OBR’s role in that somewhat questionable. Forecasting is extremely difficult—as suggested by the noble Baroness, Lady Noakes, the Bank of England’s record in forecasting has not been particularly good—and I am not sure that we need another set of forecasts. Why not simply use consensus forecasts, which the Treasury frequently uses when it suits it and which the Bank of England also uses? The only basis on which we need another forecaster to add to the 40 or so credible forecasters—if such a phrase is not a contradiction in terms—is that the Minister can assure us that the OBR’s forecasts will be better than those of any other forecaster. I see even a degree of naivety in the drafting of the Bill, which requires that the committee of the OBR publish a commentary each year on its own forecasts, which implies that past mistakes can provide lessons from which it could learn. However, the reason why the OBR’s forecasts might be wrong in one year might give very little guidance as to why a forecast might be wrong in a future year. I endorse the view that the report on the OBR’s forecasts should be produced by a peer review group rather than by the OBR. Surely that is a sequitur to the whole thrust of creating an independent Budget Responsibility Committee.

Finally under the heading of professionalism, I want to mention the word “audit”, which appears a great deal in the subsequent parts of the Bill but not at all in the first 10 clauses. Nevertheless, the Chancellor of the Exchequer told the other place last week that the forecasts he made in the comprehensive spending review had been audited by the committee of the OBR. Can the Minister explain whether auditing is a proper function of the committee and how that function could possibly have been carried out in such a short period of time by such a small unit? Does that not place at risk the integrity of the language around audit? If audit is to be a function of the OBR, that should be properly specified in the Bill, including the methodology to be used.

Finally, I have two brief points relating to the UK Debt Management Office in relation to Clause 1(1) and Clause 1(2)(a). Can the Minister tell us whether those provisions imply in some way a change in the future operation and accountability of that quite excellent office?

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[Lord Sassoon]

I think that the noble Lord was also quoting remarks that I made in my opening speech this afternoon. I have tried to make it clear that I am not in any way questioning the very fine work of Treasury officials, but questioning the overlay that was put on the forecasts whether as a result of wishful thinking or for whatever other reason.

[Lord Myners]

My recollection of the words that the noble Lord, Lord Barnett, used was “official forecasts”. So I think it is quite clear that the Chancellor of the Exchequer had in mind forecasts by the officials. Is the Minister aware of any case in which an official objected to an economic forecast that the Government presented to Parliament on the basis that it was incorrect? I certainly participated in discussions on economic performance and I saw no examples of officials objecting to the work which came from Mr David Ramsden and other members of the Treasury responsible for economic forecasting under interrogation by Ministers. Will the Minister make it clear that the use of the term “official forecasts” was not a criticism of officials? If it was a criticism, on what basis was it made, given that there were no objections?

[Lord Sassoon]

My Lords, I have made it completely clear that there is no question of my making any criticism of officials. I am making criticisms of the previous structure in which Ministers were able—whether from wishful thinking or, as I say, from more sinister motives—to decide on the forecasts. That is why we need an independent body. I am conscious of the game that is played here—that I have to sit down after about 18 or 20 minutes. I will do my best to answer as many of the points as I can but if noble Lords want to interject, of course I will listen to them but I may not get through as much as I otherwise would and will have to write to noble Lords afterwards.

In answer to the question from my noble friend Lord Higgins and others about the desirability of having a draft of the charter for the House to see—absolutely, that is what I intend should happen. We are working to that end. Related to that in terms of what happens next, the OBR will publish forecasts before the end of the month which will bring its forecasts up to date to reflect the decisions announced in the comprehensive spending review.

As we think that this is the challenge that has been set, the Bill absolutely takes away the responsibility for determining the forecast from Ministers and gives it to independent experts. It needs to be a new independent body, rather than a case of just asking one of the fine existing forecasting houses. At the critical times of the year when the forecasts need to be produced, particularly at the time of the Budget, it is essential—as has been explained in different ways by the noble Lords, Lord Turnbull and Lord Burns—to have a close relationship. We need to have an independent body of the sort that we have designed, rather than just taking consensus forecasts after the event. I think that the House would be rightly outraged if we did not at the time of the Budget immediately have forecasts available.

Ministers will retain the responsibility for making policy and for the OBR to shine a light on the state of the public finances resulting from those policy decisions. I can therefore confirm that it is the intention that the OBR should remain outside politics and should not, for example, be asked to cost alternative policies, wherever they come from, including from opposition parties.

We have heard a wide range of questions about the design of the OBR. On independence, without dwelling on it, I do not think that the comparisons in any way with the NAO are right. These bodies have very different objectives and come from very different starting points. In answer to other points, the fact that they are put in the Bill together is a result of the fact that the NAO provisions are sufficiently important that we should bring them forward at the earliest possible date. As noble Lords will understand, legislative time is hard to come by. So, in terms of the trade-off between two Bills and finding a slot to bring forward important provisions of the NAO, we have taken the decision to put the two sets of provisions in the same Bill. However, that does not mean to imply in any way that we believe that there is a comparison to be made between the provisions for the two very different bodies.

I take to heart the words of the noble Lord, Lord Burns, who said that complete separation would not be appropriate and pointed to the quality of the people as being particularly critical to the way in which independence works. The OBR’s independence will be judged on the quality of its analysis and on the ongoing scrutiny by the public and by Parliament. Our provisions have been informed by the NAO report published on 22 June which examined the forecast prepared by the interim Office for Budget Responsibility for the emergency Budget. It set out a number of indicators of independence which have informed the design of the Bill. These are set out in Clause 5(1), which talks about “complete discretion”; Clause 6(2), which talks about independence and the method of analysis; Clause 9, which talks about the “right of access” and assistance to “Government information”; and paragraph 8 of Schedule 1, which talks about staff being appointed by the OBR. The latter point was made a number of times. There are other matters not strictly in the Bill—“physical location”, for example, which has already been addressed by the OBR, and questions of funding, which can be raised directly with the Treasury Select Committee.

It was asked whether it could be argued that the OBR is independent when it is clearly working for the Government in its remit. I would describe the words “complete discretion” as the critical key here, and refer to the Bill preventing the Treasury from specifying the methods of the OBR’s analysis.

There was then a question about why the word “independence” did not appear in the Bill. Not only does the term “complete discretion” encapsulate what is intended by independence in this case but the same wording is used to empower the Comptroller and Auditor-General and the NAO, and nobody questions their independence.

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[Lord Sassoon]

I have already said that the next forecast will be produced by the OBR before the end of this month. Clearly, that will include forecasts based on all decisions taken by the Government, including the comprehensive spending review. We have approximately three weeks to wait for that.

I want to spend one minute on the points made about the National Audit Office. The critical point is that credit is due to the Public Accounts Commission for its work that led to the Bill brought forward by the previous Government and on which we have built. In answer to the points made by my noble friend Lady Browning, the provisions enshrine the independence of the Comptroller and Auditor-General. A similar point was also made by the noble Lord, Lord Touhig, to whom I am grateful for his welcome of the provisions relating to Wales. I will respond in writing to his detailed point that the period should be five years rather than two years or what was proposed by the Public Accounts Commission. I am grateful to noble Lords for confirming our direction of travel on the National Audit Office provisions.

I conclude by thanking all noble Lords who have attended and spoken in this debate—

[Lord Myners]

Before the Minister concludes, would he like to have a second try at answering the question asked by the noble Lord, Lord Eatwell, about the terms of Clause 6(1)(b), which require the Treasury to give guidance on the meanings of the words “objectively, transparently and impartially”? Why would the Treasury need to give guidance on such matters? Surely it should be for the courts to determine that in any situation in which those words were subject to debate or criticism.

[Lord Sassoon]

My Lords, I am conscious of the time and of the conventions of this House. I have explained at some length—but clearly not with sufficient clarity for the noble Lord, Lord Myners—that guidance will be given. That does not override in any way or compromise the three critical tests set out in Clause 5. I do not for one minute think that it should be necessary to get into questions of interpretation in the courts or anywhere else.