Budget Responsibility and National Audit Bill [Lords]

William Cash Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Chris Leslie]

Perhaps this is where I differ from the hon. Gentleman. I think that a slightly dry and narrow focus on the accountancy issues in the draft charter for budget responsibility, as well as a monetary policy focus at the Bank of England and in the charter, with no or scant focus on the real economy—economic growth, employment and some of those very important issues that affect all our constituents—would be a deficiency in the role of the OBR.

[Mr William Cash (Stone) (Con)]

The shadow Minister and I took part in a debate the other day that goes to the heart of these questions. Does he not agree that although fiscal policy is regarded—with qualifications as the result of the motion the Government put before the House the other day—as exclusively a matter for the House of Commons, unfortunately and disastrously, European economic governance affects the question of growth and the issues that go with it? Does he not agree that his proposals would be overtaken by the proposals that are going through the European Union?

[Chris Leslie]

I understand where the hon. Gentleman is coming from. I hope that he would acknowledge that we have tried to table a constructive set of amendments because we do not believe that a purely fiscal mandate for the Treasury or the OBR is wide enough. His view is that growth and fiscal policy will also be influenced from beyond these shores and especially by European Union policy. That may well be true.

[Mr Cash]

I do not wish to correct so much as to advise the hon. Gentleman that my position is exactly the opposite. Fiscal policy remains in this House and should do so, despite what the Government did the other day, and economic growth should also be determined here and not in other arenas. In the Public Bill Committee, he referred to judicial authority as a result of the interpretation of the statutory duties imposed in this place. Does he really want the Supreme Court to apply its determination of its ultimate supremacy over both fiscal policy and economic growth?

[Chris Leslie]

No, I do not. That was one reason why we raised this issue in Committee. The Bill sets out tests on the responsibilities of the OBR and the Treasury yet there was not really an adequate response from the Minister about the justiciability of those tests. For example, the Minister gave no cut-and-dried answer to the question of a member of the public who might wish to sue the OBR on its efficiency or effectiveness, what sort of legal process that might entail and where it would eventually go. The hon. Gentleman makes an important point.

In a cynical moment in Committee, I raised an eyebrow about the fact that 10 clauses are necessary to establish the OBR. I queried whether we needed 10 clauses to do that. The Bill contains a number of embellishments that, in a more sceptical moment, made me suspect that it was slightly padded out to make it appear to be a grander piece of legislation when a couple of clauses and a schedule would probably have done the trick. Perhaps I was unfairly cynical.

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[Chris Leslie]

I would recommend that all hon. Members take a look at the draft charter for budget responsibility, which has several interesting facets. I have no doubt that the Minister will explain, in layman’s terms, what is meant by a

“rolling, five-year forecast period”

in relation to the cyclically adjusted current balance. Some hon. Members might find it difficult to envisage how that rolling forecast will operate in principle. Many of us can understand the concept of a fixed year or a fixed date against which a set of targets are to be judged, but if the horizon shifts continually, that is different. It would be interesting to hear the Minister explain that when she responds.

[Mr Cash]

I am sure that the hon. Gentleman also has in mind clause 6(3), which imposes the following obligation:

“The Office must, in the performance of its duty…act consistently with any guidance included in the Charter”.

As he well knows, I am rather particular about the words used in legislation. I like to know, first, what they mean and, secondly, what their consequence would be; I do not think that is unreasonable. I worry about the extent to which he would effectively be taking away from this House or, for that matter, from the Minister, any responsibility whatsoever for any aspect of the running of the macro economy. I have sympathy with his objective, but I am worried about how it fits into the framework of these provisions.

[Chris Leslie]

I would not want the hon. Gentleman to misunderstand the point of our amendment. It would, in essence, ensure that the charter for budget responsibility had a wide enough definition to give the new Office for Budget Responsibility, if it is indeed an independent body, more latitude to look across the wider set of economic indices and make its analysis and assessment of the impact of the Treasury’s policy on the ground—in the real world and the real economy—instead of looking merely at the desiccated issue of deficit reduction.

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[Chris Leslie]

I look forward very much to those pre-appointment hearings and the reports of them. It is important to have people who understand the real economy. That is the gist of our amendments. We are worried about these matters.

[Mr Cash]

rose—

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[Chris Leslie]

I suspect that the Economic Secretary will make that point in her retort, when she eloquently resists all amendments, as is her usual pattern of behaviour. However, it is not clear enough that growth and employment are matters that the OBR can comment on and analyse. I absolutely would not want to give it the power to determine the mandate, but the Treasury should be big enough and ugly enough to withstand commentary from such an independent body.

[Mr Cash]

May we park that matter for now, without in any way undermining the hon. Gentleman’s main point about judicial authority? What he said in the Public Bill Committee was completely right—if we impose a statutory duty, we have to accept that the courts will adjudicate.

That is important enough, but how would the hon. Gentleman reconcile clause 6(3), which states:

“The Office must, in the performance of its duty…act consistently with any guidance”

under the charter with, for example, European directives that will emerge under the 2020 strategy? Under his proposals, which would prevail?

[Chris Leslie]

The growth mandate that we are suggesting would be a responsibility of the Treasury, not of the OBR, but it would give the OBR a duty to have regard to whatever else was in the charter. Simply inserting the fact that the Treasury had to follow a growth mandate would give the OBR the right to comment on the Treasury’s performance in respect of that mandate. Whether there are European or other influences on the Treasury’s policies and performance is a debate for another time, I suspect.

[Mr Cash]

There are.

[Chris Leslie]

I am quite sure that there are influences, but we tabled the amendment to draw out answers to some of these questions.

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[Chris Leslie]

If my hon. Friend will allow me, I will not give way. I have been speaking for rather a long time and I want to stop, but hon. Members may wish to make their own comments individually.

Clearly we need a proper growth strategy, but a growth mandate would also help. We need to start focusing on future growth industries and maximising our comparative advantage. We need to cast forward with a growth strategy not just for a decade, but for several decades. We need to focus on skills and, yes, a fiscal strategy, but we also need to focus on job creation, and a growth mandate with the clarity for the OBR to make its own assessments would certainly be a step in the right direction.

[Mr Cash]

Some time before the general election, as the financial crisis was developing—particularly in relation to the banks—there was a certain amount of talk about the idea being put forward by the then Opposition for an office for budget responsibility. I remember participating in some of those debates, and saying that I thought that it was an extremely good idea to have a much clearer picture of how we organised our finances. However, at that time the true level of debt was not being revealed by the then Government. We had reason to believe that the actual amount of debt was very different from what was being put forward. That had significant repercussions for the question of how we should deal with it. The OBR, or whatever else was going to be put in place, would have had to deal with the reality of the debt.

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[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The hon. Gentleman knows what I am going to say. I do not want to spoil what he is going to say on Third Reading, so it might be better if he stuck to the subject of the amendments. That would be more useful to us at this stage.

[Mr Cash]

I am very glad to be able to follow that advice. In order for the provisions contained in the amendments to be inserted in the Bill, it is essential for the House to be aware of the implications of judicial authority, the assertions of the Supreme Court in that context, and the sovereignty of Parliament. There is, for example, the question of fiscal policy and the charter, which is set out in clause 1(2) and to which the question of economic growth and job creation would be added by the amendments. Clause 6(3) states:

“The Office must, in the performance of its duty under section 4, act consistently with any guidance included in the Charter by virtue of this section.”

I am deeply worried about the legal status of the charter in this context.

As for fiscal policy, I remind the House that the other day, probably for the first time since 1640—Pym and Hampden and all that—the Government passed a motion saying that we were only primarily responsible for it. I voted against the motion—as did my hon. Friend the Member for Bury North (Mr Nuttall) and a number of others—but the whole House should have voted against it, because in fact we are exclusively responsible for fiscal policy, and that is what the Bill is supposed to be based on.

What worries me particularly is the inconsistency with fundamental questions that are in the background, involving the primacy of European law, sovereignty and judicial authority. I need make no further points, because in a nutshell, if those issues cannot be reconciled with what is in the Bill, and if the duties of the Office for Budget Responsibility are to examine and report on the sustainability of the public finances, to prepare “fiscal and economic forecasts”, to make assessments and analyse sustainability, and to act consistently with the charter as a matter of law, we are surely entitled to ask: which law will prevail?

Obviously, I agree with all the ideas that are being presented. We all want an efficient economy, we all want jobs and we all want growth. We cannot survive without growth, and we cannot generate the revenues to pay for the public sector without that growth in the private sector. What worries me is that all those ideas are being imposed through a Bill, rather than through the judgment of Ministers who are accountable to the House of Commons, and should not be required to refer back to the judicial authority of the courts or the alleged primacy of the European Union.

I fear that we are embarking on one of those Lewis Carroll-type situations. I am reminded of “The Hunting of the Snark”. Members may recall the phraseology. We know that we want it, we know it is there, but the question is, what is it going to do? I have a serious problem with the Bill for that reason. I fear that we are engaged in a process of wishful thinking rather than achievement, and that we are being locked into a withdrawal from parliamentary accountability—and, as some Members may know by now, I regard that as the ultimate test of our democratic system.

[Ian Murray]

It is a pleasure to follow the hon. Member for Stone (Mr Cash). At the end of his contribution he referred to wishful thinking. Labour Members certainly think the Chancellor’s gamble with the UK economy is wishful thinking. The recent reduction in GDP came as a shock to everyone, and serves to highlight some of the wishful thinking indulged in by those on the Treasury Bench.

I think that everyone supports the establishment of the Office for Budget Responsibility. One of the best measures taken by the Labour Government was the courageous step of making the Bank of England independent. We have all seen the benefits of that, in good times as well as bad, as it can now make decisions for the benefit of the economy, rather than the benefit of the Government.

In the establishment in law of the OBR, the Bill should focus on more than just deficit and debt issues. Clause 1(1) states that the Treasury must look at

“the formulation and implementation of fiscal policy and policy for the management of the National Debt.”

That narrow focus takes us away from what we need most, which is economic growth. It does not even give the OBR the ability to take account of various specific objectives the Government may want to achieve, such as on child poverty or unemployment, or in terms of the impact on the economy of decisions made by the Chancellor and his team.

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[Justine Greening]

Ultimately, a key clause—I think clause 5—sets out that it is at the OBR’s discretion to decide how to carry out its duty. A fundamental building block of the OBR’s credibility is its independence. I assure the hon. Gentleman that the risks he mentions, such as the concern that the OBR might not carry out robust analysis, are mitigated by other safeguards in the Bill. For example, one duty of the OBR will be to produce a report on the accuracy and robustness of its forecasting. As he will be aware, there are also non-executive directors who will be there on a day-to-day basis to challenge how effectively the OBR works and every five years, at a minimum, there will have to be a completely external peer review of the OBR’s workings.

I think we have managed to strike a balance by setting up the OBR in the way I have described—on the one hand by giving it independence, so it has that key element of credibility, and on the other by including some safeguards, in terms of its structure, its management and the review, so that, if for some reason it does not produce the quality of forecast that we need, those safeguards will be in place to ensure that we tackle the issue. Let us not forget that the OBR is accountable not just to Parliament, but to the Chancellor, because it produces the official forecasts.

Finally, amendment 4 suggests another new related role for the OBR, which as we have heard would be to assess the Government’s growth mandate. As I said in response to amendment 1, the Government seek to achieve their economic policy objectives through a range of policy tools and frameworks, not just through fiscal policy, but the OBR has been established to increase the credibility of the Government’s economic and fiscal forecasts and to hold the Government to account for their economic and fiscal policies.

That highly valuable role is recognised by a wide range of domestic and international commentators. The hon. Member for Swansea West mentioned the Institute for Fiscal Studies, and it warmly welcomed the establishment of the OBR, which, through its role, has already provided forecasts of key economic variables. In its November report, the OBR set out forecasts for the next five years, covering a range of key macro-economic variables, such as GDP and its forecast growth, inflation, employment, average earnings, unemployment and the output gap. In addition, the OBR will have the freedom to consider the impact of Government policy on economic growth and employment within our regions and nations, and in line with its main duty. I therefore consider all the amendments to be unnecessary, and I hope I have addressed the issues that hon. Members have raised.

[Mr Cash]

I do not want to put my hon. Friend on the spot, but I am troubled by a motion that the Government tabled in relation to a European document. I have an idea that they did not really mean to do so, but I just want to make the situation completely clear. The motion said that the Government and the House of Commons were only primarily responsible for fiscal matters and direct taxation. Will the Minister be kind enough to get that out of the way, so that we might now know that they are exclusively and solely, not merely primarily, responsible?