Wednesday, 1 December 2010
Budget Responsibility and National Audit Bill [HL]
Committee (2nd Day)
My Lords, I begin by repeating words that you have all heard many times before. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bell is rung and will resume after 10 minutes. We are now on the second day of proceedings of the Grand Committee on the Budget Responsibility and National Audit Bill.
Clauses 2 and 3 agreed.
Schedule 1 : Office for Budget Responsibility
Amendment 8 not moved.
9: Schedule 1, page 11, line 13, at end insert “; and in making such nominations the Office will set out the role of the 2 or more members, including why they are needed.”
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.
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.
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.
My Lords, will the Minister clarify one or two of his remarks? I got a bit lost. I think I am right that he is now saying that the real distinction is exec versus non-exec, not expert versus non-expert, so we have moved on from the Explanatory Notes on those clauses to something different. Do I therefore understand that the non-execs could include people who would be regarded as experts?
My second question, and I blame myself for this as I did not emphasise it in my opening remarks, concerns the rubric in the Bill, “two or more”. I meant to ask: what is the point of “or more”? Two seems a lot. Why have the Government not been able to make up their mind what they think the right number is? I was very puzzled by that. I would have thought that two, full stop, would be enough. Certainly, if I were doing this, I would say, “If we’re going to have to have these people, a couple of them are fine”, but I do not see where the “or more” comes in, unless we go along with my noble friend Lord Eatwell that the two that we have turn out not to be able to make tea and we need a third one for that purpose.
My Lords, in answer to the first question, to be clear again, it is certainly the case that there is a group which is executive and expert and then there is a second group, described at the moment in the Bill as “non-expert”, which is also non-executive. That second group could be experts, there is nothing to rule that out, but the point is that they do not have to be experts; they should, however, be sufficiently independently minded, supportive and challenging of the executive expert members.
We have put in “two or more” because at the moment we think that the remit of the OBR and the construct should be perfectly sufficient and workable for robust government arrangements. That is the minimum number. To have one non-exec would put that individual in an impossible position; two gets you to the minimum. If the OBR’s remit were somehow to develop in an unanticipated way, it might be appropriate to modestly expand the number of non-exec non-experts, but that is not the intention at the moment.
I suggest to the Minister one possible use of this third post: at some stage, it might be thought helpful to recruit someone who has experience in a different country of how this kind of arrangement has worked. The two non-executives—I really do not know why we do not just settle on that as a description, because they are expert at being non-executives—could well be supplemented by someone who brings some other dimension to the affair.
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.
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.
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.
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.
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.
Amendment 9 withdrawn.
10: Schedule 1, page 11, line 13, at end insert “, with the consent of the Treasury Committee of the House of Commons”
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.
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.
My Lords, I agree with the noble Lord. Although I am sure that the Minister will consider the amendment carefully before we get to Report, I wonder whether it would be simpler for him to add a few words to it—namely, that the Economic Affairs Committee of the House of Lords might be added to this consideration. I am sure that he would be happy to see that done.
My Lords, I am quite puzzled by this amendment because we are moving into unusual territory. We believe it absolutely right for the Treasury Committee to have a veto over the role of the chairman, but it is almost unprecedented for Parliament or parliamentary committees to have such roles at all, let alone over non-executive members. One of very few other appointments that is subject to a parliamentary veto of the sort provided for in this Bill is that of the Comptroller and Auditor-General.
In terms of the non-executives, I do not share the analysis of the noble Lord, Lord Eatwell, in terms of expertise. I shall come back to the other constitutionally substantive point, which is that we are not talking about experts in this area in any sense but about those who will bring independence of mind and who will challenge and support. That is potentially a much wider field of candidates. So I think that such appointments would rest on the relatively narrow point about what the Treasury could bring to bear, and actually I do not think that it would have anything special to bring to this. The wider point to be made here is that we would be moving into new and extraordinarily different territory. To take one broadly similar example, the non-executive members of the board of the UK Statistics Authority are appointed by the Minister for the Cabinet Office after consulting with the chair of the UK Statistics Authority. So we are following a perfectly respectable precedent.
In answer to the question of why the names that are being considered for the non-expert, non-executive role should be nominated by the OBR, again we want to strike a balance between appointment by the responsible Minister, who is the Chancellor, while not leaving it entirely to the Chancellor and the Treasury to come up with names. So again there is a perfectly well precedented route by which the authority concerned has a role in identifying candidates. That would include the Debt Management Office, the Crown Estate Office, the museums, the Natural Environment Research Council—I could go on.
Our suggestion in the Bill for how this should work is well-worn territory; there is nothing so different about the role of these non-execs. We have already had some questions about how substantive the role is, but there is nothing that takes the roles of these non-execs into remotely different territory from the role of non-execs in a lot of other well functioning bodies in the broader public sector, and we have broadly followed the appointment processes in those other areas. I am genuinely puzzled by this amendment and do not believe that it would add anything to the strength of the OBR governance arrangements.
Perhaps I may indicate one thought that has occurred to me, which the Minister might like to reflect on. It follows on from what my noble friend Lord Eatwell said: namely, that there is an enormous benefit to be gained if these people have been scrutinised. I do not believe that in practice it would occur very often, if at all, that the names brought forward were rejected, but a committee—which, one hopes, did not operate politically, such as the Treasury Select Committee; certainly the Economic Affairs of your Lordships’ House has never done so—might say, “We approve of these people; they’re just the people we need to help safeguard the independence”, which my noble friend Lord Eatwell has emphasised in this context and before. It is worth reflecting on whether that would be helpful in a body that is very different from any body that I can think of that has been set up in my time to consider economic policy-making.
There is an old adage, “Never do anything for the first time”, but that is what this body is doing, whether we think that that is good or bad. I would have thought that the Minister might like to reflect at least a little on the point that there would be positive benefits from going down the path that my noble friend suggests.
I am sorry, my Lords, I did not speak in the Second Reading debate or on Monday. The point here is about trust. The Government have set up an institution that in its early days suffered from a bit of a problem of trust. I think that that was an accident, not the fault of the OBR itself. Whatever the Government can do to establish trust in the body would help them enormously. As my noble friend Lord Peston said, this is an innovation, a very good one, and perhaps it would strengthen it to do something, as my noble friend Lord Eatwell has suggested, to say that this is not like any other public sector body but is vital to the conduct of economic policy by the Government and to the perception of that policy. If the Minister can do something to assuage the trust deficit that we have here, it would be helpful.
My Lords, I agree with the point that has just been made. It is true, as the Minister has said, that we are breaking new ground here, but the other bodies to which he referred are very different from this one, which is unique. I would have thought that the case for having the whole board approved by the Treasury Select Committee gave greater weight to the committee’s authority and would certainly make the committee, which is going to be dealing with this whole issue a great deal, more acceptable to it in future proceedings. I am not clear why the Minister objects to adding this.
My Lords, it would be a great mistake to regard being opposed to sin as the sole prerogative of the Church of England. I hope that the whole Committee is opposed to sin.
I have some sympathy with the Minister on this. My problem with this part of the schedule is that it feels too in-house to me—too much the same. The Chancellor of the Exchequer is involved in the appointments and perhaps the Select Committee will be involved. I should have thought that the office needs a certain amount of diversity; its independence requires a greater diversity. It strikes me that the schedule is too tightly constrained as it is and to constrain it further by saying that the Select Committee of the other place has to be involved each time feels odd. I would almost expect the Governor of the Bank of England to nominate a member. We need a greater sense of diversity and independence in what is supposed to be an arm’s-length body. This body is in danger of not being sufficiently arm’s length from government. On that ground alone, I support the Minister’s resistance. However, I have a problem in that the whole thing seems a bit too in-house as it is.
The noble Lord, Lord Higgins, referred to making this more acceptable to the committee. I remember reading the report of the committee in another place: it did not actually ask for this. It asked for powers on appointment, and for powers of dismissal, which are built in here. Members of that committee did not think this was necessary and I am prepared to back that judgment.
I am grateful to the right reverend Prelate. I hope that he will forgive me if I do not offer any thoughts on sin. I know my limitations. I am grateful to the noble Lord, Lord Turnbull, for reminding us that the Treasury Select Committee has not asked for this. We need to get back to the substance of this. Yes, the OBR is a critically important entity. I would not characterise its role quite in the way that the noble Lord, Lord Peston, did, as being involved in economic policy-making, but we had that discussion two days ago. The OBR is critically important. It has a role which it has already begun by producing the official economic forecast. Because that is such an important role, we have as a Government, in agreement with the Treasury Select Committee, come forward with a most unusual role for the committee in respect of appointment of the executive members of the OBR. That in itself emphasises the special nature of this entity.
We have recognised the special role of this body in the executive appointment process, but as to the non-execs, we should not get too excited and think that their role is very different. Are we really saying that the non-execs here have a completely different role to the non-execs on, say, the UK Statistics Authority board, which is another critically important part of the architecture? We risk over-engineering this.
Another point that no one has made is that all public sector appointments are subject to an independent process and a series of safeguards. We must not forget that this is not part of a closed process. I believe that the overall construct is appropriate and we should not over-engineer it, particularly in a way that the Treasury Select Committee has not asked for.
Sitting suspended for a Division in the House.
Before the Minister sits down, I should like to make one point. There is a rather good article in the Financial Times today by Miss Sue Cameron on the subject of the appointment of non-executive directors by government. It starts out by detailing some of the difficulties that the Government appear to be having in getting people of appropriate quality to step forward to take these positions. It then goes on to say that there is a lack of clarity about whom the non-executive directors owe their duties and obligations to and to whom they report. If, as I believe my noble friend Lord Eatwell suggested, the non-executive directors are there primarily to vouch for the competence and independence of the OBR committee, then it begs the question: with whom do they raise doubts about competence or independence? It seems to me that it would be the Treasury Select Committee rather than the Chancellor of the Exchequer. After all, it would probably be the Chancellor of the Exchequer or the Treasury that were encroaching on independence. If that is the case, surely it is also logical that the Treasury Select Committee should be involved in approving the appointment of the non-executive members. After all, those members are the eyes and ears of the Treasury Select Committee within the OBR committee.
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.
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.
Will the Minister confirm that appointments to this committee will follow the same procedures and processes as apply to membership of the statistics authority? In particular, will he confirm that the public appointments body will be involved in overseeing the process, that these positions will be properly advertised and that due regard will be given to diversity in the specification of the terms of appointment? I think that the Minister is leading in the direction of giving us some comfort that we can look to such parallels but it would be helpful if he could confirm that that is the case.
I hope that I can be helpful on that point. The Government expect the appointment process for the BRC to match up to the high standards of public appointments. A bespoke appointment process has been put in place for the BRC executive members involving advertising, independent involvement in the interview process and so on, and that process has been designed to be open and transparent. It is up to the OBR to design the process for the non-executive members but we would also expect that to be open and in line with the principle of transparency. We have high expectations of the quality of the process and I hope that that gives the noble Lord some comfort.
Am I to understand that the Treasury Select Committee said that it wanted to be involved in the appointment of the chairman and executive members but that it did not want to be involved in the appointment of the non-executive members? If so, that seems a rather extraordinary position to take, but I will accept whatever the Minister says.
My Lords, that is indeed the position. It may be extraordinary but, as I have tried to explain, it is entirely consistent with the fact that, as far as I am aware, no other non-executive appointments to a wide range of public bodies are subject to a parliamentary committee veto. Of course, it will be up to the Treasury Select Committee to decide whether it wants to interview the non-executive members individually, collectively or as part of the total board of the BRC, and it will have an opportunity to see them in accordance with its normal processes.
Can the noble Lord comment on the fundamental point I made in my earlier contribution that, as it is set up, it is all rather in-house and too tight and that it does not draw from a wide enough range of sources—for example, the Governor of the Bank of England? One could no doubt think of others, but can the Minister comment on that point?
Certainly it is important that the non-executives are people of independent standing and stature who are able to challenge as well as support. That is why there is a critical distinction. It may bring with it some lack of clarity but the expert/non-expert distinction makes the critical point that the non-executives should come from people who are capable of a broader challenge and support role. That is why there is a distinction between experts—which implies a closed group of economists—and a wider group. The posts will be advertised and subject to competition. It will come down, as it should, to the description of the posts, which should allow for people from wider backgrounds to come in. I welcome the right reverend Prelate’s reminder that that would be healthy.
Does the Minister share my concern that, because these two members have not been approved by the Treasury Select Committee—I realise I am taking a different tack from the right reverend Prelate—their credibility, standing and authority as challengers within the committee is in some way diminished, and that, because they have not been anointed by Mr Tyrie and his colleagues, that detracts from their standing and makes them somewhat subservient or subordinate to those who have been approved by the Treasury Select Committee? I ask the Minister to take this away and give it a little more thought.
My concern was that they are nominated by the office itself in an almost self-perpetuating sense. Whether or not they are approved by the Select Committee is a secondary issue. The more fundamental issue is how an arm’s-length body in such a sensitive and politically charged area should properly draw its membership. The danger is that this is too much like a self-perpetuating body, with the Chancellor involved in every appointment.
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.
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.
11: Schedule 1, page 13, line 21, at end insert—
“( ) The Office shall not be located in the Treasury.”
My Lords, the theme running through all our proceedings has been that the OBR shall be seen to be independent. In that context, its forecasts in particular need to be independent. It would appear that, despite what may be a possible solution, the Treasury will continue to make forecasts at the same time as the OBR is making them, and it will be extremely difficult for everyone to believe that there has not been any degree of collusion if in fact the office is located in the Treasury itself.
This is a simple amendment. It may be that the Minister will happily say right away, “It’s clear anyway from the clause, since the OBR apparently owns property in the context of this amendment’s location. There is not the slightest question of it being located in the Treasury”—in which case we can let the matter rest. I hope that that is so. I beg to move.
My Lords, it is really all about perception. We all know Robert Chote, the chairman; I respect him and believe him to be truly independent. Being based in the Treasury, with everything that that means, would clearly be wrong, but on the other hand I read recently—I do not know whether this is right—that the OBR was looking for premises outside. It may already have found them, so this amendment may not be necessary. Perhaps the Minister can tell us.
My Lords, I hope that we might be able to dispose of this a little more speedily than some other matters today, although it is important. I shall make the situation clear: Robert Chote has announced that the OBR is moving out of the Treasury and will do so—my speaking note says “next month”. I think that we are already in next month. It will be moving out in December. Before Christmas the OBR will be out of the Treasury building and going to Victoria Street, so it will not be too far away. I think that the noble Lord, Lord Burns, noted at Second Reading that the OBR will inevitably work closely with the Treasury. It will be out of the Treasury building but it will not cost its members too much in shoe leather if they occasionally need to have meetings with the Treasury and with other government departments. The OBR is moving out and it is up to that body where it goes. We should not lay down in legislation whether it should go to one place and not to another.
I do not think we can allow it to go unnoticed that the Minister, in his reference to “shoe leather”, assumed that the OBR would be called to the Treasury. I hope that the OBR will be sufficiently independent to call the Treasury to visit it at its own offices. I hope that the Minister is not conveying a subconscious message to us on that point.
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.
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.
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.
My Lords, I have not been provoked to rise by what the noble Lord, Lord Eatwell, said about the Department for Culture, Media and Sport, in which I once had the privilege of serving as a Minister. I, too, had that experience with it after I left, so I know exactly what the noble Lord meant. On the other hand, when the Department for Culture, Media and Sport was set up and was given the job of handling listed building consent, the Department of the Environment, whence that function came, had to employ Chinese walls when both departments were deciding which building should be listed and were giving listed building consent for the alteration or destruction of buildings, and there was no question at all that it was an enormous plus to have matters dealt with in two different departments. Therefore, in that respect, I have some sympathy with the amendment moved by my noble friend Lord Higgins.
My Lords, as I indicated earlier, what the Minister has proposed seems to be in line with the intention behind the amendment—namely, that the OBR and Treasury staff should not mix together over coffee or whatever. Should the situation be reversed at some point in the future, that may or may not happen. In any event, I am satisfied with the Minister’s reply and beg leave to withdraw the amendment.
Amendment 11 withdrawn.
12: Schedule 1, page 13, line 23, at end insert—
“( ) The staff must be employed solely by the Office, and not be civil servants transferred temporarily from other departments.”
Listening to the previous debate, I am even more confused than I was before about which staff are now being employed by the OBR and what the plans are for the future. Perhaps the noble Lord can help us on that. I know from a Written Answer in which I got a proper answer from the noble Lord that 12 Treasury members were still working officially for the OBR—full time, I assume. As I now understand it, having listened to the previous discussion, there are a lot of non-executive members as well as executive members. Quality will be required in the new members of the OBR, but they will not necessarily be non-executive or executive members.
I do not quite understand what we are talking about when we refer to “staff”. For example, I understand that Robert Chote, quite rightly, retired from his position as head of the Institute for Fiscal Studies. I am not clear whether that institute is continuing with another head. I think that it probably is. I see the noble Baroness, Lady Noakes, nodding—perhaps she is the new chair—but it is just adding to the 50-odd independent forecasters that we have, or whatever the number was before, plus one. I should be glad if the noble Lord could clarify that.
In Amendment 12, my noble friend Lord Peston and I say that the staff must not be civil servants, because we were both worried about them either remaining as officials of the Treasury or being temporarily transferred to the OBR, which we would not find very satisfactory. The whole point about the OBR is that not only must it be independent, which I am sure it will be, but it must be seen to be independent. If we are not careful, because of its proximity to the Chancellor and the Treasury, it will not necessarily be seen to be as independent as it should be. For example, on the previous amendment my noble friend Lord Myners talked about the OBR moving its office to Victoria Street. However, it may be moving to the offices of the Department for Business, Innovation and Skills for all I know. Perhaps the Minister can clarify that as well. My noble friend was worried about whether they would have to keep traipsing backward and forward between the OBR offices and the Treasury, rather than inviting any Treasury officials to whom they want to talk to come to them. The foreword of the recent OBR report makes it clear that it sees not only the Treasury. It states that,
“we have also drawn heavily on the help and expertise of officials across government”.
There is a whole load of them, including Revenue and Customs, and the Department for Business, Innovation and Skills. The OBR officials go to lots of offices, so there is a wide-scale connection with government. I do not object to them seeing officials in government departments—that is sensible—but it makes me wonder, when I see the number of departments that the OBR visits, just how big it is, or is going to be. Perhaps the noble Lord, Lord Sassoon, could tell us how many staff the OBR has now, how many are full time, how many are part time, how many are quality, how many are not quality—doing the footwork, you might say—how many are experts, how many are executive, and how many are part-time executive. For example, are Robert Chote and the two people with him full time or part time? I do not know. Unfortunately, I have not seen the minutes of the Treasury Select Committee, where the answers may have already been given. Perhaps the Minister can tell us. I beg to move.
My Lords, the provision in paragraph 8(2) of Schedule 1is sensible. It states:
“Staff are to be employed on such terms as to remuneration and other matters as the Office may, with the approval of the Minister for the Civil Service, determine”.
Surely that is the sensible way of doing it, with the chairman deciding which staff he wants. It would be slightly surprising if none of them came from a Civil Service econometrics background, which would bring strength to the office. Just because they have come out of Whitehall does not mean that they are somehow tied hand and foot to Treasury thinking. No doubt, people will come in from academia and elsewhere. It is for the chairman himself to decide who the best people are to do the job.
I support the noble Lord, Lord Newby. As I understand it, the number of staff would be around 20. Some may be seconded from the Treasury, some may be brought in from academia, and some may come from somewhere else. It is basically for the chairman of the OBR to assemble the best team that he wants, and we should not fetter that discretion, because there is a safeguard in Clause 5(2), which states:
“The Office must perform that duty objectively, transparently and impartially”.
In other words, anyone who is on loan from another government department is subject to that duty, which should ensure that the right degree of independence is maintained. If you say that someone with a Civil Service career must resign from the Civil Service in order to go and work for the OBR, you will raise all sorts of issues relating to pensions, seniority, this, that and the other. You will make it difficult to assemble the best-quality team, and that should be paramount.
I agree with those comments. However, the duties described in Clause 5(2) are subject to guidance given under Clause 6(1)(b), which slightly diminishes the confidence and reliance we can place on Clause 5(2).
I support the intention of this clause, but cannot bring myself to support the wording of the amendment. The majority of the staff of the OBR, certainly until quite recently, were former Treasury officials, and the majority are doing work that is very similar to the work that they were doing before the establishment of the interim OBR—work that they are now allowed to appear to criticise through the OBR. They are still in the Treasury building, they are still going to the excellent Treasury canteen for their subsidised lunches and they are still entitled to belong to the Treasury choir and the Treasury glee club. They have not left the Treasury. What we are seeking to achieve is appropriate distancing—but not at the cost of denying the OBR the best people to do the job. It is not unreasonable to assume that currently at least some of them will be working in the Treasury.
The difficulty that I have with the drafting of the amendment is the reference to “transferred temporarily”. “Temporarily” assumes some knowledge of the future. I see a situation in which somebody may go from the Treasury to the OBR and later return to the Treasury without that necessarily having been planned. There must be clear severance in employment terms: it must be quite clear that staff have left the Treasury and are now employed by the OBR. The independent, non-executive directors should keep a particularly close focus on where people are recruited from and where they go afterwards, in order to make sure that the effectiveness and credibility of the body is not diminished by a greater flow between the Treasury and the OBR than common sense might justify. However, I cannot bring myself to support the amendment as it is drafted.
My Lords, I am not in the least concerned about the precise drafting of amendments, because all our proceedings in Committee are exploratory. The central point is that the staff of the OBR should be simply the staff of the OBR—end of story. It needs to be made clear that they are not other staff. The purpose of the amendment is to say categorically that these staff are now the staff of the OBR. I take it for granted that they will be full-time rather than part-time staff. This has nothing to do with the chairman or others choosing the best people; it is to do with the status of the staff. That is all the amendment is about. They should be the staff of the OBR and therefore, unless the law is changed, they will not be the staff of the Treasury or of anywhere else. My noble friend Lord Barnett and I would like a simple answer from the Minister. Are the staff the staff of the OBR? That can be answered with a yes or no.
Yes, categorically. The Bill refers to them as the staff of the OBR. We can argue about language, but if somebody asks who my staff are, I say, “He works for me and so does he. They are on my budget and they are my staff”. Sorry, I should have said “she”. If someone said to me, “Actually, they are not, they are Treasury officials on secondment,” I would not regard that as a correct use of the words “my staff”. The Minister may agree with the noble Lord, Lord Turnbull, that the point made by my noble friend Lord Barnett and me does not matter, and may be perfectly happy for them to be on secondment, work part time and so on. If that is the position, I would like to know. My position is that an independent body appoints its own staff, and they are its staff.
My Lords, I profoundly disagree with the noble Lord, Lord Peston. I do not know what the initial position might be in the OBR in that they might all be initial employees. But we would restrict the OBR’s access to a pool of talented people if we insisted that they could work in the OBR only if they became its employees and severed any employment connections with other organisations. The OBR will be a small organisation, so in order to get good people it may well need to attract them through shorter secondments, whether to handle specific issues or to be part of the staff more generally. Over time, we have to allow the OBR that flexibility, and there is nothing wrong with that. People move in and out of all sorts of organisations throughout Whitehall and are brought in whenever it is necessary.
My Lords, I am amazed at the sheer unrealism of the proposition of the noble Lord, Lord Peston. If this is enacted, there will be a major crisis in the organisation. Around 20 people will have to take a decision whether to resign from the Treasury or quit the OBR and go back to the Treasury. That is something we could absolutely do without. The initial staff in large majority are secondees. We have not complained about their work. We did not say that the report produced last week was ineffective or that we did not trust it because the staff are seconded. The noble Lord is imposing something that will be damaging to the credibility of the organisation and will make it much more difficult to attract people of the quality it needs. As I have said, a major problem will be created immediately if such a proposition is enacted.
I did not create this problem. I did not set this body up. Unlike all other noble Lords present, I do not happen to be much in favour of it, but that is another matter. The fact is that our duty in this House, when a piece of legislation is going through, is to make it better. That is our role. So this is not my responsibility, but my point is that if we are going to have such a body, whose essence is its independence, if it turns out that the staff are secondees, that undermines its independence. It will not be independent any more.
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.
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.
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.
My Lords, perhaps I may make an analogy which is completely separate from that that we have been discussing. The SAS is now one of the finest fighting forces in the world, frequently in much demand from the United States Army to work in conjunction with it. That organisation was founded in the desert in 1942 and people were asked to volunteer to join it. If they had been asked to resign all relationship with their previous regiment, I am not at all sure that they would have joined at that stage; nor that we would have had evolving out of 70 years of history the remarkable fighting force that we have.
My Lords, we need to step back and, in answer to the fundamental challenge of my noble friend Lord Higgins, remind ourselves of just what is going on here. We need to remember that the people who were making these forecasts under the old way of doing it were essentially Ministers and their advisers, who plucked out from the numbers that the fine Treasury officials were putting in front of them, in some non-transparent way, the forecasts and published them.
In the new construct of the BRC we have Robert Chote and his two fellow members as the body charged with producing the forecasts. We should not lose sight of the fact that that is where the fundamental responsibility for decision on the forecasts will be made. What is needed under the new model—as it was under the old model—is the best possible group of forecasting expertise. The Government recognise that, yes, it needs to be independent and expert. The principal guardians will be the three independent members of the OBR, who must be allowed to hire the best staff. The arguments put forward by the noble Lords, Lord Turnbull and Lord Burns, and my noble friends Lord Newby and Lady Noakes are very persuasive. We do not want in any way to constrain the OBR from hiring and firing whoever it wants to hire and fire. But if we were to exclude it taking civil servants because civil servants would have to resign from the Civil Service, with all the consequences that that might mean for their terms of employment, pension and so on, that would significantly reduce the pool of relatively talented people that the OBR should be able to employ.
Sir Alan Budd, in his advice on the permanent OBR, noted the benefits of the office being established as a Civil Service employer. The noble Lord, Lord Myners, makes an important point, which is that as well as the OBR having freedom, the non-executive directors will take on a role, which is to consider the overall mix of people. There is not remotely a question of complacency here, but we should not invent a problem where there is not one and significantly restrict the potential pool of relevant expertise on which the BRC will need to call.
In answer to some of the questions from the noble Lord, Lord Barnett, about the situation at present, the OBR has 13 full-time staff. They are Treasury employees on secondment because, for as long as it takes noble Lords in this House and Members in another place to pass the legislation, they cannot be employed by anyone else. As soon as the legislation is passed and we put the body on a statutory basis—the sooner, the better, I say—lots of things will be put on to their proper basis, because the OBR will under paragraph 8(1) of Schedule 1 become an employer in its own right. Under the well established terms for Civil Service employment, staff can be transferred, remain within the Civil Service and maintain their Civil Service terms and have the ability to move. They might not necessarily move back to the Treasury, but take a completely different direction in their career.
There are 13 staff now supporting the BRC. Of the three BRC members, Robert Chote is full time and Stephen Nickell and Graham Parker are working, on average, three days a week at the moment. There is no question about the non-execs, because they do not exist. That is how it is at the moment. As the noble Lord, Lord Turnbull, indicated, the expectation is that the steady state of the OBR will be about 20 employees, but that is a matter for Robert Chote. He will make those decisions.
I intervene because I think that the Minister is winding up on this amendment. Why is it assumed that the staff of the OBR have to be people seconded from the Treasury? It is not as if the world is short of economic forecasters. One has only to look at the list of economic forecasters in the summary which the Treasury produces. Why do we feel that we have to second people from the Treasury rather than recruit them on a competitive basis?
It is simply a matter of fact at the moment, because the OBR is not yet constituted on a statutory basis, that the employing body has to be somewhere else and, at the moment, it is the Treasury. The staff do not have to come from the Treasury. Indeed, I understand that an advertisement is out now publicly before the OBR to recruit an economist. It can recruit from wherever it likes; it has the resources to do that. The OBR will recruit to have an appropriate mix of knowledge and expertise, but the critical thing is that that it should recruit from wherever it would like to without any unreasonable hindrance. All the recruitment will be led by the independent, externally recruited members of the BRC. Even though it is not a formal employer at the moment, it is getting on and doing all the recruitment, totally independently.
Perhaps I may interrupt the noble Lord. Do his numbers include secretaries, computer programmers and all the ancillary staff, or is he talking about frontline staff? I do not see how the OBR has managed to do any work at all if it does not have lots of ancillary staff. Am I wrong in that?
I cannot give a breakdown of exactly what they all do, although it would be possible to do so. The office no doubt buys in all sorts of services, but that is the total number of staff. As I said, I believe that Robert Chote intends that when the office is totally established there will be about 20 full-time staff. That is the number that he believes will be needed.
I find it extraordinary that the Minister has just disclosed to the Committee that the OBR has a total of 13 staff, including support workers and secretaries, yet the Government suggest that the OBR audited the Government’s forecast expenditure. Auditing is a demanding, challenging and fairly labour-intensive task, as the noble Baroness, Lady Noakes, will no doubt vouch. Auditing future expectations is extraordinarily difficult; to do it with only 13 people makes the use of that word totally inappropriate.
There should be no surprise when I say that there are 13 people because I answered a Written Question asked by the noble Lord, Lord Barnett, almost exactly a month ago when the figure was 12. Now, it is 13. I received a note saying “IPA” but I did not say anything about that because I thought, “What does India Pale Ale have to do with it?”. However, I have now worked it out: the OBR has one PA. This is a lean and mean organisation. It includes secretaries and it has one PA. This is not a numbers game; it is a question of expertise and independence and, as has already been referred to, drawing on the underlying modelling base in Whitehall. The OBR does not require a superstructure of people to carry out the critical role that it does. If at any stage it decides that it wants more resources, it will have the ability—we will come to this in later clauses—to put forward the necessary request for money.
My Lords, I was trying to be brief. I introduced this amendment by asking just a few questions so that we might reach the target number of amendments that the Government want to reach today. I am not trying to delay the Committee but we have now spent 32 minutes on this amendment. I am not objecting to that; I welcome the views of Members of this Committee, such as the noble Lords, Lord Burns and Lord Turnbull, my noble friend Lord Myners and, indeed, the noble Lord, Lord Sassoon, himself, who have worked in the Treasury rather more recently than I have. I apologise for trying to be brief and for not expanding on what I might say at a later stage. However, I have now elicited a reasonable amount of information from the noble Lord, Lord Sassoon. I should make it clear that in no way am I or, I am sure, my noble friend Lord Peston seeking to obstruct Lord Chote—no, that comes later; I am making a forecast now. We are not seeking to obstruct the OBR from employing the best possible people.
I want to be crystal clear: like everyone else, we are both concerned about the independence of this body. As I indicated on Second Reading, I was not in favour of setting it up—unlike every other Member of this Committee—but we must have it. I do not object to that now but I want to know exactly what is going to happen. I was told by recent senior officials of the Treasury that people could be popping in and out and that there was no career structure. Perhaps the plan is that the OBR will be temporary, I do not know. I thought not; I thought it was another permanent independent forecasting body that was perhaps doing a lot more work than the Institute for Fiscal Studies or any of the other independent bodies. I would welcome any further information on that.
I do not wish to pursue the matter further now, other than to make clear that we are seeking to ensure the true independence—and the perceived true independence—of the OBR. I beg leave to withdraw the amendment.
Amendment 12 withdrawn.
13: Schedule 1, page 14, line 3, at end insert—
“( ) The Office must make public the nature and membership of any committee or sub-committee it sets up, and subsequently the report of any such committee or sub-committee.”
My Lords, Amendment 13 is intended to create a legal obligation for the OBR to publish the nature and membership of committees or sub-committees and to publish the reports of those committees. It is inconsistent with the right of the OBR under paragraph 11 of Schedule 1 to determine the procedure of any committee or sub-committee. We should not seek to fetter the way in which the OBR organises its committee structure and processes. While I am happy to talk at greater length, we should leave it up to the OBR to determine how its committees and sub-committees should operate. This would be consistent with everything that we have said about the independent and unfettered way that it should go about its business.
I am sorry to interrupt my noble friend. The amendment asks simply that the nature and membership of any committee or sub-committee, and the reports of any such committee or sub-committee, should be made public. That does not fetter in any way the discretion of the OBR to set up those committees; it is merely part of the public accountability of the OBR to explain what it does and how it does it. It is quiet simple and I am not sure why the Minister is resisting it on the grounds that he has given.
For example, if the OBR wished to set up a sub-committee to deal with internal personnel matters, it would not be appropriate that it should be required to publish details about that. We are making presumptions that sub-committees have a particular meaning. Perhaps we should step back for a moment. The output of the OBR is essentially the 150-page document that it has now produced, along with a number of other reports and analyses that it has already made, and it has set out plans for future work streams. We must remember that this is not equivalent to talking about the Monetary Policy Committee or the yet to be established financial policy committee of the Bank of England, which will have regular monthly meetings to make decisions about policy.
We need to be clear about this. The output of the BRC of the OBR will be a series of policy documents that will not come regularly out of a minute-taking and minute-making process. Perhaps I was presuming a bit too much in my brief answer. The committee’s structure is up to the OBR, but it is likely to have more to do with the governance and management of the entity than with the reporting that comes out in its major documents. In that context, requiring this straitjacket would be inappropriate for the nature of the entity.
My Lords, I speak specifically to Amendment 14, which proposes that the budget responsibility committee should publish the minutes of its meetings. I wait with somewhat bated breath, but with diminishing hope, for the Minister at some point, having whetted our appetite on Monday, to find some sympathy for at least one amendment. I fear that this will probably not be the one that he chooses to approve.
It is pleasing, though, in proposing this amendment, to have the noble Baroness, Lady Noakes in attendance in Committee. My mind goes back to a debate on the Financial Services Bill. The Committee may remember that that Bill, which was produced by the previous Government, proposed the establishment of a council for financial stability. The Government proposed that the council’s minutes should be published. The noble Baroness supported that but went on to propose a number of amendments, including ones relating to the speed with which the minutes should be published and, importantly, a requirement that the minutes should attribute comments to individuals participating in the council rather than being produced in the style of the Monetary Policy Committee.
I hope that we are not now seeing a conversion in the thinking of the Conservative Party, which is the leading member of the coalition, in this respect. When it was in Opposition there was a great enthusiasm for transparency, now that it is in government I hope we are not going to hear arguments that transparency would not be appropriate. If I could be persuaded that there was an argument for publishing the minutes of the council for financial stability—which, noble Lords will remember, succeeded the rather less formal tripartite process—a body that deals with quite confidential matters relating to systemic and idiosyncratic risk relating to individual financial institutions, and if I believed that the party in Government supported the view that those minutes should be not only published but published promptly and in a full and detailed form with attributed comments, then I find it difficult to believe that the Conservative Party would not also approve the publication of the minutes of the committee of the Office of Budget Responsibility.
I go back to the points that were made earlier today by at least two noble Lords: that this proposal would further enhance the appearance of independence—and, no doubt, the effective independence—of that committee and, in so doing, facilitate the role that the Chancellor of the Exchequer and the Treasury clearly have in mind. I urge the Minister to recognise that in respect of transparency this is a good opportunity to ensure that the minutes of the committee of the Office of Budget Responsibility are published.
The Government are already committed to saying that the people who meet the committee of the Office of Budget Responsibility will be identified in announcements made shortly after major publications—I do not know whether such an announcement has already been made in respect of the OBR’s report earlier this week—but it is incomplete to say that the OBR met the Chancellor of the Exchequer on five occasions, Mr David Ramsden on four occasions and economists from the Bank of England on two or three occasions without letting us see how that information shaped and formed the thinking that went into the OBR report. That would be best evidenced through the publication of the minutes, which would allude to any such input that had an important impact on the ultimate thinking and conclusions of the committee of the OBR.
My Lords, there are three amendments in the group, but I want first to say a brief word about the amendment spoken to by my noble friend Lord Barnett. I am intrigued by what is set out in the Bill: the setting up of a committee or sub-committee that may consist of or include persons who are neither members of the office nor members of the staff. I asked myself what this could possibly be about. The Minister decided that he did not like that by quoting the most trivial example he could have dreamed up, and went on to say that they might have set up a committee to deal with personnel matters and that that should not be known. I do not see why that should not be known; transparency means transparency, it does not mean “transparency but”. I want to know what serious argument the Minister could possibly put forward to explain why the office is not obliged to let us know if it sets up a committee. I had assumed that we were talking about a committee of experts on optimal forecasting methods and that sort of thing. We need a more serious response from the Minister.
A fortiori, the amendment tabled by my noble friend Lord Myners requires a serious reply. If you believe in transparency, would there be any circumstances why the minutes of the Budget Responsibility Committee should not only be published but be made available to the public at the same time as they are made available to the members of the committee? Both of those are matters of significance.
I come now to the third amendment in the group, just to say that it is also important. My noble friend Lord Barnett will enlarge on it in a moment, but again I hope that we are given a serious answer, rather than a trivial example to explain why the Minister does not like it.
I shall say a word about Amendment 34. It seeks to provide that:
“The Office will place in the public domain a record of all meetings with the Chancellor … and other ministers”.
When I tabled a Question for Written Answer on this matter for the noble Lord, Lord Sassoon, he asked Robert Chote to answer it. Mr Chote has duly written to me and I shall quote from it:
“We will be publishing a list of contacts between the OBR and ministers, special advisers and their private offices shortly after each autumn and Budget forecast, beginning with our forthcoming forecast on November 29th”.
I do not know when the list is going to be published and I have not seen it, but it is clear that regular formal or informal meetings with the Chancellor and other Ministers are a very important matter for an independent forecaster, one that is not available to our other 50-odd forecasters. So I hope we will have an answer to this very soon. That is the whole purpose of Amendment 34.
I shall not add to my remarks because I am trying hard to curtail my contributions so that we get to the target figure of amendments that the Government want to see dealt with. But far be it from me to prevent Members of the Committee speaking.
My Lords, it seems that an analogy is being drawn with the Monetary Policy Committee, whose minutes are produced. What happens at the Bank is this. On the preceding Friday of the week in which the committee meets, the members spend the whole day going through virtually every possible economic indicator and receive reports from the agents around the country. That is a meeting, but no minutes are taken. I think the members then meet on the Tuesday afternoon and hold discussions during which they try to sift out what the main measures are to be. Again, there are no minutes, or certainly none that are published. The members then come together at the formal meeting, which is where they take decisions and where the minutes for the record are produced.
In other words, they do not produce a running commentary. We are told here that the BRC has more than 40 challenge meetings with officials from other departments, in addition to numerous meetings at staff level. That is complete overkill and, I would say, a false analogy with the Bank to assume that each of those meetings has to be minuted and published. This thing is published—there are 150 pages of it—and it is produced twice a year. Everything else is work in progress, which leads to the production of the report. We should be satisfied with the fact that it is produced, eventually, after talking to whomever the committee wants to and whatever progress it wants to make. Some of that will include what is or is not in the Budget; some of it goes to the nature of fiscal policy. What is eventually produced is this report. Those are the minutes and I do not think that we need anything beyond them.
I am very grateful to the noble Lord, Lord Turnbull, who, I think, gets it absolutely right. There is a further point, which he did not stress, which is that the Monetary Policy Committee is a policy-making committee. It is therefore important to understand how policy, and the thinking behind the policy, is being made. The OBR is not making policy; it is producing forecasts. They are very important forecasts and that is a critical function, but it is not policy-making that requires minutes to understand.
The Minister has made a very important point. Can he clarify whether, because the committee of the OBR is not making policy, any Freedom of Information enquiries made to the committee of the Office of Budget Responsibility will require the committee to disclose minutes of meetings? One of the exemptions that I found—both as a Minister when I was signing the exemptions and which I now find rather more frustrating when I am not getting the information I require—is that the information officer in the department has concluded that this relates to advice to Ministers on policy-making, and therefore the document cannot be disclosed. The Minister has made a clear statement that that committee is not involved in policy-making, and, therefore, that exemption from FOI inquiries will not apply. I hope that he can confirm that my understanding is correct.
The noble Lord’s understanding is correct in so far as the OBR will be subject to freedom of information legislation. That is clear. Of course, the example that he gives is not the only exemption. I do not want to disappoint him, but he should understand that, as he well knows, there are other exemptions—for example, where disclosure could prejudice the effective conduct of public affairs. They will be subject to the normal tests. No doubt the commissioner will test them if people want to challenge any decisions, but it will be for the OBR to decide how it interprets the Freedom of Information Act.
So, the OBR will have its own information staff—it will not be relying on the Treasury for that. Of the 13 people, there is now minus one who is doing FOI; minus two was a PA. I must note that when the noble Lord, Lord Sassoon, was an employee of UBS Warburg, he probably had more than 13 PAs, let alone 13 staff. Can he confirm that that number now includes a freedom of information officer in the OBR, and that it does not rely on the Treasury for that function?
It is clearly up to Robert Chote how he deploys his staff and what they do. Noble Lords obviously have not quite grasped what is meant by the independence of the OBR. It means that it is for the office to organise its life. I have not the faintest idea how it will do it, but I am sure that it will do it professionally and appropriately and that it will devote the necessary resources.
In answer to another question, I was going to quote from page 3 of the OBR report to summarise the contacts that it has had in the build-up to producing its 150 pages, but the noble Lord, Lord Turnbull, has already pointed to the key paragraph. The OBR made it clear that it would publish the list of contacts, which, as it promised, is coming out this week, shortly after the publication of the report.
Nothing in the Bill stops the OBR publishing any minutes, reports or documents of any kind that it wants to. As well as focusing on the critical point that we should not require it to produce minutes for the sake of minutes when the output is forecasts rather than policy-making discussions, it is also important that we should recognise that if it wants to disclose anything about the way in which it goes about its business, it is entirely free to do so. It can draw on external expertise. It might have committees with external experts. There is nothing to preclude that. The core executive functions cannot be delegated, though, and the minimum output will be the two formal reports per year. However, it is already also producing a considerable amount of other information, and it will do so in future. It is for the office to be as transparent as it thinks is appropriate, consistent with its mandate.
I do not for one minute take this to be a trivial point. I made the comparison with the MPC because it is critical. However, the amendments would require the OBR and the BRC to do a number of things that on the one hand are not required—consistent with the principles of accountability, transparency and independence—and, on the other, would put minor straitjackets on it that are not necessary because it should be free to publish whatever it sees fit to publish.
This has been an interesting discussion. I am sympathetic to some of the objectives that are desired, but I am afraid that the amendments in this group do not add anything to the underlying purposes, which I understand are well intentioned. I ask noble Lords not to press their amendments.
Perhaps I might try once more. There was a birth trauma when the OBR was established, and its independence was undermined by what happened. Sir Alan Budd has publicly said that he suffered as a result. We are trying to help the Government to re-establish trust in this body. They have taken the view that they have done enough—but that is what they said last time. It is fine for them not to accept the amendments, but they will harm the reputation of the OBR.
My Lords, again I intended this to be a very brief debate, but already it has taken 22 minutes. I am obliged to the noble Lord, Lord Turnbull, for replying to my amendment. Sometimes I have the feeling that he is a frustrated ex-permanent secretary who, having taken control of Ministers, the Opposition and everybody else, now finds himself having to listen to arguments that he would have dismissed out of hand before. I hope that he will forgive me. I appreciate what he said, except when he claimed that there was no analogy between the MPC and the OBR. I deliberately never referred to the MPC. I more than recognise the difference between the MPC, which was given a job to do under the Bank of England Act, and the OBR. I recognise that the OBR is a forecasting body, but it looks as if it will be rather more, judging by the 150-page document before us.
The Minister, who has formally replied to the debate in place of the noble Lord, Lord Turnbull, said that once again—in Amendment 13, I think—we wanted to say something that was unnecessary because the OBR can do it anyway. Again, though, if it can do it, why not leave it in the Bill? However, we will come back to that on another occasion. Meanwhile, I beg leave to withdraw the amendment.
Amendment 13 withdrawn.
Amendments 14 and 15 not moved.
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.”
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.
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.
My Lords, I support the spirit of this amendment for the reasons put forward by the noble Lord, Lord Eatwell. I am sure that no problems with the budget will arise during the early years of the existence of this body. Indeed, it has probably already been agreed in the present expenditure round. But if we are going to safeguard the OBR into the future, it is necessary to have a system of public accountability and the opportunity for the executive members and perhaps the non-executives to be questioned by the Treasury Select Committee whether they think the resources being made available to them are sufficient to do the job. On this occasion, I disagree with the noble Lord, Lord Higgins, because this is an issue that falls to the Treasury Select Committee as the body with oversight of the extent to which the OBR is doing its job effectively.
In most cases I suspect that these issues would arise naturally, without having to include them in the Bill, so I shall listen carefully to what the noble Lord, Lord Sassoon, has to say in reply. As I said, however, the spirit that is captured in the amendment is an important safeguard in terms of the future of the OBR. That is because in five or 10 years’ time, the circumstances surrounding the body may be very different.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Clause 4 : Main duty of Office
18: Clause 4, page 2, line 20, at end insert “on the basis of section 1(2)(a) and (b)”
My Lords, Clause 4 states:
“It is the duty of the Office to examine and report on the sustainability of the public finances”.
The amendment proposes to insert at the end of that passage,
“on the basis of section 1(2)(a) and (b)”,
which, as we have already discovered, state that the charter should set out,
“the Treasury’s objectives in relation to fiscal policy and policy for the management of the National Debt”,
and the means by which the Treasury is going to achieve that. It is important to refer back to the earlier passage to be clear about how the OBR will carry out its duties.
I still have considerable problems in understanding how it is going to look into these matters without also examining the Government’s economic policy—a matter that we spent a long time on in the previous Committee sitting. In the mean time, however, we have received a letter from the Minister commenting on that aspect. It is closely written and very condensed, and it deserves careful study. I presume that it is being placed in the Library so that it will be generally available.
The letter was intended to be helpful in advance of our discussion. It was sent around by e-mail earlier today, but noble Lords may not have seen it. I do not know who received it and I am not sure exactly what time it went out. Hard copies are available here in the Moses Room and it is now, or soon will be, on the Bill’s website. We tried to distribute it in as wide a way as we could.
In fact, as my noble friend has discovered, the letter was also available to the Committee today. In it, this complicated issue has been very condensed, and we will no doubt wish to return to it later.
As I say, I still have problems in believing that the OBR will carry out its duty in the terms that I quoted earlier unless it can take into account the Government’s general economic policy, which is one of the means in subsection (2)(b) by which the Treasury intends to achieve its fiscal policy, otherwise known as the fiscal mandate. In any event, it seems to clarify the situation if we accept the wording in the amendment.
Amendment 27, proposed by the noble Lords opposite, is, rightly, linked with this amendment. It raises an important point: what is meant by sustainability? The essence of what I understand that the OBR is going to do is report on whether the fiscal policies—and, I thought, the economic policies—are sustainable. At this stage, so that we have some idea what we are talking about, we need a clear definition from the Minister of what is meant by “sustainability”. One problem, of course, is that one can sustain the finances at various levels. Without knowing what the economic policy is, it will be difficult to know at what level it is proposed to sustain the financial side of the Government’s operations. We need to know, since it is in the Bill and it is important, what “sustainability” means.
My Lords, the noble Lord, Lord Higgins, has referred to Amendment 27 in the name of my noble friend Lord Peston and myself. The amendment itself says:
“In any report on the sustainability of the public finances, ‘sustainability’ must be defined”.
I have tried hard to obtain some kind of definition of “sustainability” in the sense in which the Minister has used it—I have tried to elicit information on many of the words that he has used, as he knows—but that word, in some of the contexts that it is used, is a little difficult, to say the least. That is why we tabled the amendment; we need to know what is being talked about here.
Again, I have tried to be helpful and brief. I would like the Minister to explain briefly what is meant by “sustainability”.
My Lords, the noble Lord, Lord Higgins, put his finger on the central issue that we debated at some length on Monday and on which I have since had a chance to reflect. The Government seem to be taking two positions. One is that it is possible to separate economic policymaking from economic forecasting. I used to lecture on this subject and I can say categorically that that is simply nonsense. I cannot believe that any serious economist would accept that the two can be separated. In fact, the correct position is entirely the opposite. The optimal macroeconomic policy and the optimal macroeconomic forecast are part and parcel of the same piece of economic analysis. That enables one to focus, first, on the major difference between some of us and the Government on this matter.
The second position, again echoing the noble Lord, Lord Higgins, is that however we define sustainability—several of us could try and I will have a go at it when we get to Report—the presumption that one should not make, and indeed economics tells us that exactly the reverse is the case, is that there is one unique state of government finances that is sustainable, rather than a multiplicity of such states. Therefore we must not make the error of assuming that there is only one sustainable policy, whatever the definition is.
Finally, since Monday I have had a chance to read the Economic and fiscal outlook. It reminds me of a debate that has been going on in economics for about 100 years, which is normally encapsulated in the phrase “measurement without theory”. The great Nobel prizewinning economist attacked the founders of the National Bureau of Economic Research because they were great believers in measuring, but in doing so without theory. I am in a tiny minority here because I do not think much of this report as a piece of economics. It is an example of economic forecasting without theory, and that is really not the way to do it. So my intervention is to make it clear that we need some clarification from the Government, and what we need to accept that there are many possible policies that might be pursued, along with many sustainable positions.
My Lords, I regard the question of sustainability as very important, so much so that although I will give a brief definition, because I have been asked what the Government mean by it, the critical issue for the OBR is concerned is that it should have an unfettered ability to look at sustainability in its broadest sense. I see that the noble Lord, Lord Peston, is nodding in agreement. The main objective here is not to constrain the OBR by giving it some sort of government laid-down definition of sustainability—there is more nodding, for which I am grateful—so while I can give my own overview definition of sustainability, that rather misses the point. Sustainability is part of the Treasury’s overall fiscal policy objectives, and to the Government, the sustainability of the public finances means putting them on a footing from which they can withstand shocks. It means keeping the deficit down so that debt does not spiral out of control. That is the fundamental of it, and it is the Treasury’s responsibility to make policy that supports sustainable public finances. That would be my overview of where we start.
The important point is that the OBR should take this matter away. It seems to have indicated that this is not an easy thing to do, and has already made that clear in its remarks both in the Pre-Budget forecast earlier this year and in the November document, the Economic and fiscal outlook. The OBR talks about what it has done, and critically it says that it will examine the issue of sustainability in detail in the fiscal sustainability report due next summer. That is at paragraph 5.25 on page 140 of the latest document. There is a section on sustainability and, indeed, a chapter on fiscal sustainability, including, on page 55 of the pre-Budget forecast document, lots of complicated equations that are beyond my grasp of economics. The OBR is already, quite rightly, beginning to analyse this. It recognises that a lot more analysis is to be done, including looking at the implications of a number of relevant government policy areas and reviews. It has set all that out. The critical thing here is that we make sure that the OBR is allowed to do that unfettered.
I would not necessarily want to constrain the OBR in the way suggested by Amendment 27. I am sympathetic to the principle, because I think that it absolutely has to explain the context of any work that it does on sustainability.
Indeed. The question is: what is appropriate to put in the legislation? There is an element here of risking treating the OBR inappropriately by telling it to do things that are clearly already self-evident to the OBR, in that it has already started to make significant comments on sustainability but is not rushing to final conclusions or making it the subject of a separate major piece of work. Therefore I am absolutely sympathetic to the principle but I am not sure that we should get into the game of writing down everything that the OBR is to do. The question this provokes in my mind is whether anything more should be said about this point in the charter. If there is any more to be said, it should be in the charter, and it is in that context that I should like to reflect on the substance of Amendment 27.
Amendment 18 makes an explicit link between the OBR and the Treasury’s objectives and mandate. I absolutely agree that it is important for the OBR to work in the context of these objectives and the mandate. Therefore, the purpose behind my noble friend’s amendment is entirely appropriate but I am a little concerned that, taken particularly with Amendment 30, it would not provide sufficient protection to keep the OBR out of what could become broader and politicised debates about policy scenarios.
I have thought about this carefully. I believe that the current design achieves a balance for the broad remit for the OBR with a sufficiently clear focus on government policy, and any amendment in this area would need to ensure that that careful balance was protected. I am worried that the amendment might challenge that. As I said, I believe that the substance of what is intended is already in the Bill. I very much took to heart the words of noble Lords on this area at Second Reading, including those of the noble Lord, Lord Burns, who noted the importance of the OBR not being drawn into wider political debates and not opining on alternative policy options. We have to keep the OBR focused on the fact that its forecast has to be of the economic policies that have been decided by the Government. However, we should not through inappropriate drafting risk taking the OBR into debates about the policy itself.
I shall continue to think carefully about whether we have got the balance right, but I hope my noble friend understands that we may risk drawing the OBR into something wider than I suspect he intends. I ask him to withdraw the amendment.
My Lords, we are in danger of getting involved in metaphysics rather than econometrics. The absolutely central thing in the Bill is that the main duty of the office is to examine and report on sustainability. To say, “Oh well, the OBR itself will decide what is meant by that” when it is in the Bill is not a satisfactory situation. We have to have some idea of what is meant by it.
As far as the individual is concerned, it is fairly clear: if your expenditure is more than your income, the position is not sustainable—except, of course, that you can delay the proceedings by borrowing and so on. The same is not totally untrue as far as the Government are concerned. In the light of the earlier clauses to which I referred, is the OBR going to say, “The way the Government are going will not work. Their fiscal objective”—in the simple terms I have just outlined for an individual——“is not sustainable”? The same would have been true if the OBR had been reporting earlier on the position of the Irish Government. It could have said, “This is not sustainable. You will either default, have to be bailed out—which may or may not be a sustainable position—get out of the euro, or whatever”. Is the OBR going to say, as perhaps it might have said to the previous Government, “What you are doing is not sustainable”?
We have taken the clear position as an incoming Government that what the previous Government were doing was not sustainable; in short, they were going to go bust unless they could continue borrowing enough to stay afloat. Is this what is meant by sustainability? It probably is but, if so, we at least need confirmation from the Government—not from the OBR—that it means, “You cannot go on doing this without various other consequences following”.
My Lords, I tried to make clear in summary what the Government understand by “sustainability”. It encompasses the thinking of my noble friend, which is the bare minimum that anyone would understand by “sustainability”. I want to allow the OBR to interpret it further. The noble Lord, Lord Peston, shakes his head. I say it is the bare minimum but I want to give the OBR the freedom to interpret “sustainability” in as wide a way as it thinks appropriate. Of course the OBR can and should say that the public finances are not sustainable if it considers that to be the case. It has written on sustainability already and will do a lot more work. I do not want to constrain it with a government definition that people may criticise. Having said that, there is a need for further consideration to ascertain whether the matter of sustainability can be reflected in the charter. However, it should not be done in a way that lays down a government definition of it.
My Lords, as I have said, I am happy to discuss it with the OBR again, but it clearly believes that this is a very difficult issue, which is why it has made some opening comments, if you like, on sustainability in both its June and its November documents. It will make it the subject of a self-standing report—I assume, a significant one—next year, which is in its programme. It has already said that sustainability in its full richness cannot and should not be rushed or reduced to a simple formula. It wants to lay its thinking out in detail, and we should allow it to do that.
Amendment 18 withdrawn.
19: Clause 4, page 2, line 20, at end insert “in the light of the Government’s economic policy”
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.
My Lords, I have been struggling with this debate. I have had difficulty in seeing where it was going. When I looked at the amendment of the noble Lord, Lord Eatwell, I thought, “Surely everyone assumes that that is the way that it will be done in any case”. In that sense, I am not sure what the amendment adds because I do not understand what the counterfactual position would be if the OBR tried to do an analysis of sustainability that was not in the light of the Government’s economic policy. To the extent that the amendment would clarify a situation if there were any real doubt about whether that would be the position, then I can see that it has merit.
I am not contradicting what the noble Lord says about how this should be done. I would expect the OBR to do it in that way, largely because I cannot see how it would do it in any other way; it would be rather limited. My assumption is that the response to this will be, “It isn’t necessary because everyone would assume that this was the way that it would be done”. I agree with everything that the noble Lord has said about how one would hope that this would be done; my only question is whether the amendment is necessary.
On the question of how far one wants to spell out the issue of sustainability, my preference would be to leave the OBR to give its own definition and present its own analysis. It would then be up to others to question whether it had done that correctly, whether it had missed out something in its definition of “sustainability” or whether the analysis was too narrow and should have been broadened. That could easily be a subject for debate after the OBR had presented its report, and no doubt it would then be taken into account when it made its next report.
If we follow much of the debate that has gone on, and if we are setting up something that we hope will last a long time, I am conscious of the fact that there are not many aspects of economic policy that remain unchanged for long periods of time. People’s interpretations of words and policies move over time. I would be cautious about trying to be too specific about what we mean by “sustainability”. In the broadest sense we understand what it means but, if circumstances were to arise that required a different definition or we had to assume that the Government would react in some way in future to certain types of events and that were to be built into the analysis, that could be done.
I find myself agreeing with the amendment, but I question whether it is necessary or whether it would not be assumed that what it suggests would already be the case.
I am grateful to the noble Lord, Lord Burns. I think that he gets it right. I am sympathetic to the underlying concern of the noble Lord, Lord Eatwell, to try to solve a problem. The analysis of sustainability—the main duty of the office—has to have regard to, and be in the light of, the Government’s economic policy, so I do not think that there is any other way of doing it. Of course we must get the technical drafting right on this. In so far as there is any potential problem, we need to get it right.
I sometimes find the drafting of these things a bit obtuse, but I am advised by the experts on how these things are drafted that Clause 5(3) deals with the issue that the amendment is intended to remedy. That subsection states:
“Where any Government policies are relevant to the performance of that duty, the Office may not consider what the effect of any alternative policies would be”.
It seems to deal with what should be excluded rather than what should be included. Due to the way that legislation is constructed, however, I am told that by referring to what should not be considered, the link to what should be considered is there by implication and hard-wired into Clause 5, which is the critical provision on how the main duty is to be performed. I am advised by the experts on these matters that we have in the Bill what is technically necessary to make the link through to the Government’s economic policy. Further to that, we have to be careful—this very much relates to the point made by the noble Lord, Lord Burns—because there are a lot of other matters in here that may come and go, to which the main duty of must have regard. Yes, it relates to economic policy, but what about the Government’s taxation and expenditure policies? What about the potential for the impact of external shocks? There is a danger here that if we agreed to the amendment, it would boilerplate the importance of the duty being carried out,
“in the light of the Government’s economic policy”.
I agree with the noble Lord, Lord Burns; how could it be any other way?
Again, I am advised that the drafting of the amendment would not necessarily achieve that end. If we include “in the light of economic policies”, even if it was widely interpreted, does that mean we should refer also to other aspects of sustainability, such as, for example, the impact of external shocks? I believe that the subsection works, even as drafted. We absolutely agree with both noble Lords in terms of what we expect to be taken into account, but we do not consider that the amendment will help. Its drafting does not do the trick and, I am advised, aims at something which is not necessary because we have it in Clause 5(3).
I have, in fact, tabled an amendment to Clause 5(3)—Amendment 30, which we shall come to in due course. However, long experience in these matters suggests that occasionally when one is discussing a Bill, it becomes apparent at what stage the parliamentary draftsman had a nervous breakdown. If the advice given by the parliamentary draftsman is that in some way Clause 5(3) is helpful in defining the point that we are discussing, I find that very surprising.
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.
My Lords, Clause 5(3) on page 3 of the Bill is the subject of Amendment 30. However, I entirely agree with what the noble Lord said a moment ago: one cannot conceivably construe that subsection as in some way qualifying the issue that we are now debating. If that is the advice that my noble friend is getting from the parliamentary draftsmen, who of course are paid far more than anyone else in the Civil Service, it is an extraordinary answer.
Perhaps I may try again. Under Clause 4(1) it is the duty of the office to examine and report on the sustainability of the public finances. For the reasons explained by the noble Lord, Lord Burns, it would be difficult to report on the sustainability of the public finances without having regard to a lot of things, including—critically and at the centre—government economic policy. That links to what is laid out in the charter. If there is any doubt about whether the office will take account of government economic policies, as opposed to any other economic policies, we should look at Clause 5 for guidance on how the main duty is to be performed. The first point, which is important, is that the office has complete discretion, subject to certain subsections. Therefore, there will be a raft of approaches and other considerations that it can bring in if it considers them to be relevant.
We may then go on to subsection (3), having established that the OBR could not exercise its main duty without having regard to economic policies. Clause 5(3) makes it abundantly clear that when it looks at economic and other policies, it must have regard to any relevant government policies—not just economic policies, or economic policies defined in the widest sense by the noble Lord, Lord Burns. Under Clause 4, the office must have regard to economic policy; otherwise, how on earth would it start to look at sustainability? Clause 5(3) makes it clear that the policies that it must have regard to are not alternative policies but the policies of the Government. It is clear if one follows it through.
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…”
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”.
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.
There is an issue with the drafting of Clause 5 and I wonder whether we are trying to make subsection (3) work too hard for its living. I had assumed that it was there to make sure that the OBR did not get dragged into a political debate and would not be called upon by anyone to cost opposition policies—which, as we know, has become a bit of a habit over the past 25 years—or by a Select Committee to insist that it compared the outcome of the Government’s policies with that of another set of policies. That would inevitably draw the OBR into a political debate. I had assumed that that was the purpose of this subsection, and it may be working it too hard to say that it should also do the job suggested by the noble Lord, Lord Eatwell. I think that the noble Lord, Lord Newby, has captured the spirit of what a number of us have been concerned about.
Do not push me, because I can sit down now. All the notes say “Resist”, but there is “resist” with a smiling face and there is another kind. If this discussion is intended to reopen the debate around Clause 1, which would have the effect of getting the OBR into the business of commenting on government economic policy and conceivably alternative economic policies, then I am not going to suggest looking at clarifying the drafting to achieve that. My starting point, like that of the noble Lord, Lord Burns, is that it would not be possible to carry out the measure set out in Clause 4(1). How could you conceivably do that if it were not based on the Government’s economic policies as widely defined, including thinking about the potential for external shocks and so on? The very important point is that Clause 5(3) stipulates that the context is only one of government policies, not alternative versions. Therefore, when the OBR carries out its analysis, it should look at only the government policies that have been announced.
I am trying to be helpful; this is clearly rather more complicated than we may have thought a little time ago. Could my noble friend simply say that he will look to see whether the intention of the Government has been encapsulated by the draftsmen and that, if not, he will table a more suitable amendment, because I do not think that we can leave it as it is?
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—
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.
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.
Committee adjourned at 7.13 pm.