Schedule 1: Office for Budget Responsibility
1: Schedule 1, page 13, line 38, at end insert—
“( ) The members appointed under paragraph 1(1)(c) constitute a committee of the Office to be known as the Non-executive Committee.”
My Lords, we usefully teased out a number of issues on this Bill in Grand Committee, so I am pleased to be able to come back to the House with a number of amendments, of which this group is the first. Our amendments very much reflect a number of critical points that we discussed in Grand Committee.
Perhaps I should start with Amendment 4, on which Amendments 1 and 2 are essentially consequential. We are talking here about the independence of the OBR. Amendment 4 will formalise the role of the non-executive directors in reporting on the extent to which the OBR’s duty has been performed, in accordance with Clauses 5(1) and 5(2) of the Bill. To ensure the OBR’s credibility, it is important that the OBR is able to operate with the complete discretion provided for at Clause 5(1) and in line with the principles of Clause 5(2). Amendment 4 provides a mechanism for the non-executive directors to report on anything that they believe has prevented the OBR from carrying out its duty with complete discretion and “objectively, transparently and impartially”. Such a report will feature as part of the OBR’s annual report, which is to be laid before Parliament. For example, the non-execs might report on any interference with the preparation and publication of the OBR’s reports or any attempt to control the OBR through manipulating its budget.
Amendment 12 will remove the provision that states that the charter may include guidance on Clauses 5(2) and 5(3). That will address the particular concern raised in Grand Committee that the charter could be used to redefine the commonly used terms “objectively, transparently and impartially”. It is not the Government’s intention to subvert what these terms mean through the charter. The amendment will therefore remove the marker that strongly indicates that the charter will define what these terms mean.
Amendment 13 will change the process for amending the guidance in the charter. Concerns were raised in Committee that such modifications could be done too easily, which would again undermine the independence of the OBR. Amendment 13 requires the Treasury to publish any revisions to the guidance at least 28 days before the modified charter is laid before Parliament for approval in another place. This period of 28 days, which is consistent with the period used in other secondary legislation, will provide further opportunity for scrutiny of and comment on the guidance before it is voted on. If appropriate, the Government could respond to, or make changes in the light of, this scrutiny before the formal version is laid for approval.
Other safeguards remain in place. The charter is limited to considering the functions conferred on the OBR in the Bill and cannot add or distort them. The charter must also be approved by an affirmative resolution in another place before it comes into force.
Amendment 11 will clarify the drafting of Clause 5(3) to make explicit that the OBR must have regard to government policies relevant to its analysis, including the Government’s economic policies. The amendment preserves the original effect of Clause 5(3), which is to prevent the OBR from examining non-government policies. Otherwise, the OBR could be drawn into political commentary, which might undermine its perceived impartiality and independence. The OBR will continue to be able to analyse non-policy scenarios such as economic or demographic scenarios. I beg to move.
My Lords, this is a rather heterogeneous group of amendments. In fact, the only common theme that I can see running through the amendments is that most of the ideas in them were proposed by the Opposition in Grand Committee. We are delighted that the Government have accepted many of the arguments made by this side concerning important failings in the Bill as originally introduced.
An essential difficulty with the structure of the OBR is that the OBR is to be both outside government and yet of government. The goal of the Bill is to make the OBR independent—a goal that we on this side fully support—yet, as the provider of the official forecast, the OBR is an essential part of policy-making and must be closely involved with the development and costing of government programmes. As the draft charter states,
“The Government will have full and timely access to information and assistance from the OBR”.
A very obvious manifestation of the resultant ambiguities is that the Treasury is planning to retain forecasting skills in order that Ministers may make informed judgments on the impact of various policies. As the noble Lord made clear in Committee, this may lead to the extraordinary situation in which the Treasury could reject the official forecast. Such paradoxes are the inevitable outcome of the peculiar, ambiguous status of the OBR.
Given this peculiar status, it has been the objective of this side of the House to reinforce the independence of the OBR wherever we might. After all, if there is not widespread confidence in that independence, the legislation will have failed. To that end, I am pleased that the Government have—in the form of Amendments 1, 2 and 4—accepted our argument that the non-executive members of the OBR should be given clear roles, including, most importantly, that of guardians of the independence of the OBR and, as we shall see in later amendments to be considered by the House, that of securing third-party monitoring of the OBR’s performance. We are pleased to support Amendments 1, 2 and 4.
There are two other important amendments in this heterogeneous group—I am sure that, listening to the Minister introducing the amendments, noble Lords might have been rather puzzled about why they are in a single group. Following suggestions made by this side and by the noble Lord, Lord Newby, Amendment 11 clarifies the previously obscurantist Clause 5(3). Will the Minister confirm that Clause 5(3) as amended will ensure that the evaluation of the relevant government policies will essentially be part and parcel of all the OBR’s work, including the work outlined and defined in the charter?
Amendment 12 is an acceptance of our argument that it is preposterous that the Treasury should, via the charter, be able to qualify the meaning of the requirement for the OBR to perform its duties “objectively, transparently and impartially”. I am delighted that the amendment will remove that nonsense. Will the Minister make it clear that the remaining requirement—which is, so to speak, all that is left—in Clause 6, which provides that the charter
“may include guidance to the Office about how it should perform its duty under section 4, including (in particular) guidance about … the time at which it is to prepare any forecast, assessment or analysis”,
can now refer only to the time at which the OBR should perform its duties under Clause 4? Do any wider, unspecified powers of direction remain? It would helpful if the Minister could clarify that, since Clause 6 will now have been changed to such an extent that it is not entirely clear what subsection (3) now refers to when it refers back to subsection (1).
Finally, in Amendment 13 the Government have responded to our criticism about the lack of adequate parliamentary scrutiny of the charter by requiring that a draft of any modification be published 28 days before the charter is laid before Parliament to be approved by resolution of the House of Commons. This is an important improvement on what went before, but even so—as the noble Lord, Lord Newby, said in Committee—the charter is subject only to vestigial parliamentary scrutiny. The important word in this context is “vestigial”.
That raises an important issue mentioned in the notes distributed with the amendments for the Report stage. Noble Lords will recall that several elements of the charter came in for stiff criticism in Grand Committee, yet the notes that accompany this stage declare that the revised charter will be published only after the Bill has received Royal Assent. That cannot be right. The failure to provide a revised charter deprives Members of another place of the opportunity to relate the charter in the Government’s preferred form to their substantive discussion of the Bill. In effect, this is the Government stifling debate on the charter. Will the Minister give me an assurance that this underhand way of going about things will be rescinded and that the revised charter will be published in good time for its consideration by another place?
These government amendments are welcome because they recognise the discussions held in Committee. The Minister has a gone a long way towards responding to the concerns that were expressed.
I am particularly pleased with Amendment 11 because we spent a lot of time on this issue. Clearly, the original drafting was inadequate. Pride of authorship means that I am unhappy that the words that I suggested in Committee are not being used, but the wording in Amendment 11 will do exactly the same job, so I welcome that.
I also welcome Amendment 13 for the reasons suggested by the noble Lord, Lord Eatwell. I have some sympathy with his last point. I cannot see why the charter cannot be presented in its final form before the Bill goes through another place. I cannot believe that there will be much to change—the charter is not a very long document—so, for the reasons given by the noble Lord, that would be an improvement on what is currently proposed.
I want to make a final comment on what the noble Lord, Lord Eatwell, said about the Treasury retaining its own forecasting ability and what would happen if there was a dispute with the OBR. We discussed at some length in Committee why it was essential that the Treasury should retain it own forecasting abilities While it would clearly be a major source of embarrassment if the Treasury disagreed with the OBR forecast, the one good thing about the new system is that, presumably, any such disagreement would be transparent because the Treasury would have to explain that it has disagreed with the OBR and give reasons why, and there would no doubt be a huge row about it. Although that might be uncomfortable for the Government, that will at least expose all the issues that are in dispute. In the interests of transparency, surely that is a good thing.
My Lords, I intervene briefly to express appreciation to my noble friend for the way in which he has kept us in touch during the period between Grand Committee and now with the way in which his thoughts have been developing. Certainly this is a non-controversial Bill, but the House is succeeding in improving it still further and that is a good thing.
My Lords, I thank the noble Lord, Lord Sassoon, for his amendments. He referred again to the independence of the OBR but, as he knows, I have all along been concerned with both its relevance and independence.
On relevance, there are dozens of truly independent forecasting bodies all over the country, including the Institute for Fiscal Studies, which used to be chaired by the present chairman of the OBR. The issue concerns itself with the expense of a body such as this when we have not only the forecasts of the independent outside bodies but the Treasury forecasts, the Bank of England forecasts and the OBR forecasts, most of which probably will be broadly in line with the current situation.
We will never know—I have tried to find out on many different occasions—the Government’s view on what should happen when they have the forecasts. The Minister has found all kinds of different ways of not answering my questions about what the Government’s policy is and whether they agree with the Bank of England on keeping interest rates at 0.5 per cent, given the growing pressure—wrongly in many quarters—on the need to increase interest rates. He will not say whether he disagrees—I appreciate that he cannot disagree with or say anything different to what the Chancellor has said—but it would be nice if, at some time or another, he could answer the question of what the Government’s policy is, as opposed to accepting the forecasts, which he has done on numerous occasions.
On the question of independence, I am worried by the constant references in the media to “the Government’s in-house forecasting body, the OBR”. This does not lend itself very well to the independence that we would all like to see in the OBR. I am sure Robert Chote will do his best to ensure that it is truly independent but, if it is no more independent than the dozens of existing bodies, why do we need the OBR at all? That is the question I put to the noble Lord while thanking him for the amendments he has brought forward.
My Lords, I add my support for the amendments. It is to the great credit of the Minister that he took away the good discussions we had in Committee and has produced this and the other amendments today.
The noble Lord, Lord Barnett, referred to the OBR being regarded as the Government’s in-house forecasting body. I have never heard it referred to in those terms, although I know that noble Lords on the Benches opposite have tried to make that accusation stick. I believe it is already regarded as a properly independent body under its chairman, Mr Robert Chote, and we should rejoice in that.
I also welcome these amendments. We spent a great deal of time in Grand Committee trying to bring greater clarity to the remit of the OBR and protecting its independence. We also tried to clarify the governance of the OBR and, particularly, the role of its non-executive members. The Government have responded positively to those discussions. The amendments deal very well with the bulk of the issues that were raised, particularly in clarifying those areas of the remit where there was ambiguity and the role of the non-executive members in relation to their oversight of the forecasting process and as the protectors of the external review process. That has been a success.
I fear that there will always be a certain amount of tension between observers when it comes to the relationship between the forecasts of the OBR and the activities that take place within the Treasury. I pointed out at Second Reading that whatever arrangements are put in place for the OBR, you cannot strip the Treasury of its own skill set and the resources it needs to monitor the progress of the economy and to make judgments on whether the economy is following the track that was intended at the time that measures were taken. This is an arrangement that we have to live with. I am sure that as time goes on, we will see much more clearly the way in which those are worked out and how the OBR relates to the internal activities of the Treasury. I hope that noble Lords will not get too exercised about this. That is a natural tension that exists in this type of arrangement and I would be surprised if it cannot be made to work.
My Lords, I am grateful for the general support around the House which this group of amendments seems to command. I am very happy for noble Lords to take credit for the ideas in there, if they wish to do so. Although the noble Lord, Lord Eatwell, may not quite understand or want to appreciate why we have grouped these amendments together, they all touch critically on the independence of the OBR.
I am grateful to my noble friend Lady Noakes for pointing out that in the OBR’s short existence—even before it is within a statutory framework—Robert Chote and his colleagues have done a remarkable job through the quality and extent of their work to carve out an unchallenged reputation for quality of thinking and independence. Of course, we need to make sure that the Bill underpins that. In that context, I am grateful to the noble Lord, Lord Burns, who speaks from a position of great authority as a former Permanent Secretary at the Treasury, for pointing out that for all the OBR’s independence, HM Treasury will need to retain a separate capability to monitor and assess the progression of the economy. I thought that his admirable summary was the answer to the question of the noble Lord, Lord Barnett.
I had a sense of déjà vu, because I thought we were going back to Oral Questions with the first part of the noble Lord’s intervention. We will pass over our regular sparring about the Monetary Policy Committee, but his questions on why the OBR is needed and its independence were partly answered by the noble Lord, Lord Burns. Fundamentally, over the past few years, as the previous Government redefined the cycle, there was not an appropriate degree of transparency around the forecasts, which is why we believe the OBR is necessary. I do not want to dwell on that because we spent a lot of time on that at Second Reading and in Committee.
The job now is to get that independence properly enshrined in the Bill, which takes me to the suggestions from the noble Lord, Lord Eatwell. Also, on the comment from my noble friend Lord Newby, I am sorry that the parliamentary draftsmen did not precisely agree with his wording but grateful for confirmation that we got to the same result. On the couple of questions from the noble Lord, Lord Eatwell, on Clause 5(3), indeed the OBR now has a clear and explicit duty to consider government policies in its work. That is what the OBR is essentially all about: assessing the impact of government policies and, on the back of that, whether the fiscal mandate will be met. Clause 5(3) is indeed now quite clear on that.
Clause 6(1) is quite explicit that the charter may still give guidance on other topics but there is a particular signal that the charter may give particular guidance on timing. When the noble Lord comes on to press me on the draft charter, I think that we will all agree on how important the transparency of the remit is. The critical point, as I hope noble Lords would agree, is that we published the draft charter early on in our discussions, to enable that to be fully considered in Committee. As my noble friend Lord Newby said, any consequential redrafting of the charter as a result of our discussions will be small.
The essential point is that we issued a draft charter in very good time for discussion now. There is no overwhelming need to issue a new draft, simply because not a lot will have changed. We have been clear on the issues that we have looked at again. While I hear what has been said, I do not want to prejudice how the charter and the Bill might be looked at as they go through the stages in another place, as and when we send the Bill there. I hope that answers the various points that have come up on this group of amendments.
Amendment 1 agreed.
2: Schedule 1, page 14, line 13, leave out “The Budget Responsibility Committee” and insert “A committee established by paragraph 9”
Amendment 2 agreed.
3: Schedule 1, page 14, line 26, at end insert—
“Review by Non-executive Committee12A The Non-executive Committee must keep under review the way in which the Office’s duty under section 4 is performed.”
My Lords, producing high-quality work requires the OBR to have access to all relevant information and expertise. The Bill provides for this through a right of access to information, a Budget Responsibility Committee of experts and a duty to act transparently. In response to the discussion in Grand Committee, these arrangements are intended to be bolstered by the two amendments that we are bringing forward.
Amendment 3 gives the non-executives a duty to keep under review the processes that the OBR uses to assure that it is producing the best possible work. These are likely to be management processes that the non-executives will be well placed to consider. Examples might include: whether the OBR is consulting with a wide and appropriate range of experts, including academics and internationally; whether it is working effectively with the rest of government to produce analysis; and, to make sure that it follows up lessons from internal reviews.
Amendment 5 requires the non-executives committee periodically to commission independent expert reviews of the OBR’s work. In detail, it needs to consider frequency: these reviews could be carried out at times considered appropriate by the non-executives, but “at least” every five years. In scope, the review will consider work published in the relevant period. The non-executives will determine which of the OBR’s reports are to be considered. That could be all the OBR’s work or a particular theme could be focused upon. This flexibility is important to ensure that maximum value is always gained from the reviews. There is then the question of the reviewer. The non-executives would appoint a person or body with the appropriate knowledge or experience to carry out each review. Although we expect the reviews to have minimal costs, there is provision in the Bill for the OBR to make payments to the reviewers—for example, for their expenses. Each review will be published and a copy laid before Parliament. I beg to move.
My Lords, I think that everyone who took part in Grand Committee will feel that these amendments should be dedicated to the noble Baroness, Lady Noakes—who I am afraid is not in her place to hear this—as it was she who, at Second Reading, raised the issue of writing one’s own school report and the necessity of having an independent assessment of the OBR’s performance. Amendments 3 and 5 therefore establish the responsibility of the non-executives to keep under review the activities of the OBR, relative to its main duty. An important component of this monitoring will be the commission of the third-party reviews of the OBR’s performance, as described by the Minister.
We are entirely supportive of the Government’s amendments in this respect, other than in one crucial aspect. Amendment 5 proposes that an assessment by an independent person or body should be carried out,
“at least once in every relevant 5-year period”.
The final part of the amendment, proposed in new sub-paragraph (7), says,
“the period of 5 years beginning with 1 October 2010”.
However, as will be evident from Amendment 6, which I shall be moving, we on this side think that five years is too long a period. First, as a professional economist, I feel that five years is much too long for an organisation to be running before its activities are assessed independently. After all, the OBR will be producing more than one report a year—in fact, there will be three or four reports—so within three years there will be a substantial body of material for an independent assessor to consider. The independent review will also have value for the OBR. It will provide informed third-party input into its techniques and procedures, and postponing that for five years will unnecessarily weaken the expertise that feeds into the OBR’s work. Of course, expert appraisal of the OBR’s activity will also be an important input into parliamentary scrutiny, and I think that in parliamentary terms we should want more regular consideration than is provided by this amendment.
That parliamentary element leads me to the second reason why five years is too long. Setting a five-year appraisal period politicises a process that should be entirely apolitical. If the Government secure the constitutional reforms that they have proposed, five years will be the length of a fixed-term Parliament; hence the OBR review will become part of a five-year political cycle. Indeed, as I emphasised to noble Lords just now with regard to proposed new sub-paragraph (7) in the amendment, the timing has been set carefully so that a review takes place just after the next election. Review of the work of the OBR should be divorced from the political cycle and not linked to it in any way. That is why my Amendment 6 sets the review period at three years. This will achieve the dual objective of allowing timely consideration of the work of the OBR, giving Mr Chote and his colleagues the benefit of that professional input and stimulus, but most important of all, establishing a cycle of review which is divorced from the political cycle. That is a crucial aspect in maintaining independence and cross-party respect for the work of the OBR.
My Lords, the noble Lord, Lord Eatwell, describes his proposed change from at least five years to at least three years as “crucial”, but his whole argument as set out implies that, on all occasions, the non-executive committee would choose to have this review at the very end of the period during which it is allowed to have the review. I cannot for one moment imagine that that is what it would do. If we are to have confidence in the non-executive committee that is being set up in the Bill, it seems to me that we have to give it quite a lot of discretion about the timing of when it thinks it is appropriate to have a review. That will be governed in part by the extent to which the outcome of the work of the OBR comes under criticism, the extent to which we think there are lessons to be learnt. I am content with the five years not because I think the review should take place every five years, but because I think that the onus should be upon the non-executive members to take the decision about the timing—one should not box them in too much.
By bringing this forward and suggesting that it should be every three years, we are setting a clear timetable as to when those reviews will take place, rather than leaving it in the hands of the committee that is being set up in the Bill to make that decision. I hope that the noble Lord, Lord Eatwell, will reflect on the emphasis that he has given to this five-year period and his interpretation that the committee will always let it run the full length. I would rather show more confidence in the role of the non-executive body and give it discretion as to when is thinks is an appropriate time to have that review in the light of circumstance and events and how the work of the OBR is seen.
My Lords, I support Amendment 6 to Amendment 5. I was not in the House for the beginning of Report, but I add my congratulations to those that I understand were expressed to the Minister on rejecting the advice that Ministers so often receive to resist and instead listening carefully to what was said by all sides in Committee, taking that into consideration and bringing forward a set of very constructive and welcome amendments. That shows the House performing its correct and proper function of revision, being professional and efficient, enhancing the quality of the Government’s intention and not unduly delaying the House in so doing.
I repeat my support for the concept of the Office for Budget Responsibility. I hope that, just as the Minister reminded us during Oral Questions that the previous Government established the Monetary Policy Committee which is now an important part of our financial and economic infrastructure, the OBR will be a similar testament to this Government’s contribution to building a sustainable and effective architecture. However, I support the amendment put forward by my noble friend Lord Eatwell because it seems to me that the symmetry between the electoral cycle and five years is simply inappropriate for something which should be established to stand well apart from day-to-day politics and the electoral cycle.
It is particularly important that the work of the OBR should be subject to independent review in a shorter period than five years at commencement. It is new, and it is going to be establishing a lot of new ways of working and new formats for reporting that no doubt will evolve over time. It would be unfortunate if we did not have a chance to stand back and look at how it was performing and how its contribution could perhaps be further enhanced before five years had elapsed—before we got to 2016.
There is a strong reason for having these reviews in periods of not more than three years, rather than in periods of not more than five years, as proposed. However, the noble Lord, Lord Burns, is right to remind us, as I am sure the Minister will in his closing speech, that the current draft says that, as it should not be more than five years, it could well be that the committee, the membership of which has not yet been selected or identified, could choose to make the reports earlier. For the purpose of good order and good process and, frankly, to strengthen further the integrity of the OBR and the confidence that it will be able to sustain from the broader public, these reviews should take place more frequently than once every five years. Once every three years would be a better outcome. It is for that reason that I support Amendment 6.
My Lords, I support the government amendments to introduce an external review. The debate in Committee and, to an extent, at Second Reading demonstrated why that was a good idea.
As for whether three years or five makes better sense, I have a lot of sympathy with what the noble Lord, Lord Burns, said about the benefits of five years. The amendment is very flexible. It does not say that the review will be commenced on 1 October five years hence. It says that at any point a review can be undertaken; as soon as the non-execs were appointed, they could cause a review to be undertaken if they were worried ab initio that the office was not performing well. If they then felt that it carried on causing them concern, they could have another review relatively quickly. The draft gives the non-execs a lot of flexibility.
What we are doing here is a belt-and-braces job. On the assumption that the office is doing a reasonable job, and bearing in mind that it will be subject to a huge amount of external scrutiny—this body is not operating in the closet with no one looking at what it is doing; every time it produces a report, 50 economists mark it—to do that roughly once a Parliament sounds about right.
My Lords, as from time to time I disagree with my noble friend Lord Eatwell, I make it clear that on Amendment 6 I strongly agree with him. It makes sense to separate the review from the political cycle. I will disagree with him at a later stage, but on this I thought that he made a very good point.
I am never surprised at the noble Lord, Lord Burns, speaking as if he is on the Treasury Front Bench. We should not be surprised; he has been doing it all his life. He did a marvellous job in the Treasury, particularly for the five years that I was there.
I thought that my noble friend Lord Eatwell made a good point about the cycle, as did my noble friend Lord Myners, and I hope that on reflection the Minister will accept the amendment. It makes a lot of sense and he might, on this occasion, accept it.
My Lords, I start by welcoming the noble Lord, Lord Myners, back to the Chamber. I am not sure that he had quite got his script co-ordinated with the Front Bench, but I accept his congratulations. I will put aside their slightly backhanded nature. Next time I think he should speak to his Front Bench, which seemed to be taking sole credit for the government amendments that have come forward. Nevertheless, I am grateful to him.
My Lords, the Minister will recognise that, speaking as I do from the Back Benches, I speak independently. I reach my own conclusions and express my own views. My congratulations to the Minister are in no way fettered by what those on my Front Bench might have said.
I heard the noble Lord say that he wanted to add to the congratulations, but there were none before. Anyway, I am grateful to him. Perish the thought that he might have been out of the Chamber briefing the press on his mildly diverting, if somewhat predictable, contribution to Oral Questions, but let us move on. Noble Lords have focused on only one point in responding to this group of amendments, which is whether the backstop date, because I regard it as a backstop date—the noble Lord is obviously distracted by something in the corner of the Chamber. I want to address the point about the five-year backstop dates.
I thought that I heard support from across the Chamber on this point. As I say, the issue is one of a backstop date. The noble Lord, Lord Eatwell, is seeing chimera where none is to be seen in trying to link the political cycle with this five-year backstop date. We think that it is appropriate to have a date in there to ensure that the independent review happens at some stage, but it is most likely that the non-executive directors will indeed choose to have reviews on some other cycle or whenever they think it is appropriate. I absolutely agree with the noble Lord, Lord Burns, that we have to allow—it is proper to allow this—the non-executive committee the freedom to make up its own mind on this. A shorter period may well be decided on, particularly in the initial period of operation, just as, in the context of the Monetary Policy Committee, a review was carried out a couple of years into the new arrangements. Therefore, we should leave this to the committee’s judgment and not impose a rigid pattern on it.
It might be relevant to consider read-across or precedents from other comparable bodies. However, I have been able to tease out only one comparable read-across involving the Dutch Central Planning Bureau, which has a provision for external reviews every five years and has stuck to that model since 1945. That continues to work for that body.
I believe that it has the review every five years, but I think it would be wrong to have a fixed provision of five years. One of the dangers of having a shorter time such as three years is that it might become a regular feature. What we need here is flexibility but with a sensible and appropriate backstop date. It is also important to remember in this context that these external reviews are far from the only means through which the OBR is being and will be scrutinised. I remind noble Lords that the package of scrutiny goes much wider. First, there is the duty on the OBR to act transparently, which means that all its work is open to ongoing challenge and review—this is proving to be the case already—from any of the well regarded and distinguished think tanks and academics looking at its work. The OBR is required to produce an annual assessment of the accuracy of its fiscal and economic forecasts.
There is also the fact that the OBR intends to establish an advisory panel of experts to support and challenge its work on an ongoing basis, which not only is an important additional element of external challenge and review but brings the OBR into line with the best practice, drawn in this case from the United States’ CBO. I see the noble Lord nodding on that point.
On the basis of the argument put forward by the noble Lord, Lord Burns, and backed up by my noble friend Lord Newby, and considering the other elements of scrutiny that are ongoing and challenged externally, I ask the noble Lord to withdraw his amendment.
Amendment 3 agreed.
4: Schedule 1, page 15, line 3, at end insert—
“( ) The report must include, in particular, an assessment by the Non-executive Committee of the extent to which the Office’s duty under section 4 has been performed in accordance with section 5(1) and (2).”
Amendment 4 agreed.
5: Schedule 1, page 15, line 12, at end insert—
“External review14A (1) The Non-executive Committee must, at least once in every relevant 4 5-year period, appoint a person or body to review and report on such of the Office’s reports as the Committee determines.(2) In sub-paragraph (1) “the Office’s reports” means the reports which— (a) have been made in pursuance of the Office’s duty under section 4, and(b) have been published since the relevant date.(3) The “relevant date” is—
(a) in the case of the first review carried out under this paragraph, 1 October 2010;(b) in the case of subsequent reviews, the date of the last review carried out under this paragraph.(4) A person or body may be appointed under this paragraph only if the person or body has knowledge or experience likely to be relevant to the performance of the Office’s duty under section 4.
(5) The Office may, with the approval of the Treasury, make payments to the person or body in respect of the performance of the person’s or body’s functions under this paragraph.
(6) The Office must—
(a) publish each report prepared under this paragraph,(b) lay it before Parliament, and(c) send a copy of it to the Treasury.(7) In this paragraph “relevant 5-year period” means—
(a) the period of 5 years beginning with 1 October 2010;(b) each successive period of 5 years.”
Amendment 6 (to Amendment 5)
6: Schedule 1, line 4, leave out “5-year” and insert “3-year”
My Lords, I will not speak to this amendment again except to say that I think that it would be very unfortunate if there were to be a delay of more than about three years to an external assessment of the work of the OBR. While one wants confidence in one’s non-execs, one also wants some framework within which to work, as my noble friend Lord Myners said.
I welcome the news that an advisory group will be established. I think that that is an excellent idea and I am delighted that it is going to happen. It is regrettable that the Government have not accepted this amendment but, in the context, I will not move it.
Amendment 6 not moved.
Amendment 5 agreed.
7: Schedule 1, page 15, line 18, at end insert—
“( ) The budget for the annual operations of the Office of Budget Responsibility shall be published, and be available for scrutiny by the Treasury Committee of the House of Commons.”
My Lords, I first moved this amendment in Grand Committee in which, of course, there are no votes, and the matter was simply left on the table. I regret that the Government have not seen fit to bring forward some proposals whereby the OBR’s budget would be formally exposed to independent scrutiny. My argument then was the same as my argument now. Given that our fundamental objective is to ensure the OBR’s independence to the greatest degree possible, one of the key means of controlling any independent organisation that is limiting its budget relative to its responsibilities must be constrained. In this amendment we have proposed that it be constrained by the requirement to publish the annual budget and make it available for scrutiny and assessment by the Treasury Committee in another place.
When we discussed this in Grand Committee, the Minister made the following points. First, he argued that the Treasury was incentivised to fund the OBR adequately, since the OBR performed important tasks for the Treasury. What worries me is that this argument is indicative of a failure by the Government to understand fully the need to ensure the independence of the OBR. Of course the Treasury is incentivised to fund what it wants done, but it is not incentivised to fund what it does not want done. Truly independent studies by the OBR that ruffle Treasury feathers will not attract enthusiastic funding from the Treasury. Therefore the incentivised argument really does not carry any weight.
Secondly, the Minister argued that the current funding agreement, outlined in a letter from Sir Nicholas Macpherson to Robert Chote, provided adequate funds to the OBR through to 2014, but what about after 2014? The creation of the OBR is not just for the next three or four years. We on this side of the House hope that it will become and remain for many years a valuable instrument in UK economic policy-making—valuable because it is independent—just as the Monetary Policy Committee has become a valuable instrument in UK economic policy-making. To argue simply that things are okay now is a quite inadequate way of providing confidence for the future. Therefore, the second argument does not stack up.
Thirdly, the Minister argued that there were other means of informing the Treasury Committee of another place of the OBR’s budgetary position, for example via the OBR annual report. Once again, he fails to grasp the substance of independence. It is not for the OBR to fight its budgetary corner, which is what it is being asked to do. It is for Parliament to ensure that its independence is protected. That is what we on this side seek to do in this amendment.
Finally, the Minister suggested—extraordinarily—that paragraph 15 to Schedule 1 provided protection for the OBR’s budget, whereas in fact it does exactly theopposite, leaving power with the Treasury to keep the OBR on as tight a budgetary leash as it wishes. Therefore, the arguments deployed in Grand Committee did not answer the case that was made. They were not simply unconvincing but disturbing, in that they betrayed a lack of understanding of, and commitment to, the concept of the independence of the OBR.
I have been working on this issue and my concerns deepened when I investigated what had happened to similar organisations in comparable jurisdictions. In Canada, the incoming Conservative Government established the Parliamentary Budget Office in 2008. Toronto’s Globe and Mail reported that a year later, after the Parliamentary Budget Office had produced two reports that were critical of the Government, the office’s annual budget was frozen despite earlier promises to boost it by a third. This was Canada's Macpherson moment, when the letter and the promise were withdrawn.
In Sweden, the Fiscal Policy Council was set up in 2007, once again by an incoming Conservative Government—there is a pattern here. On 18 November last year, the council wrote an open letter to the Government pointing to the discrepancy between its remit and its resources. What was the reaction? The Swedish Minister of Finance is reported to have reacted negatively to the letter and suggested—you guessed it—that the council's budget should be cut in response. Thus in Canada and Sweden—two jurisdictions for which we have great respect—critical reports have resulted in budgets being frozen or cut.
On 6 December last year, a letter appeared in the Financial Times in support of the independence of the Hungarian Fiscal Council—the Hungarian version of the OBR. One author of that letter was Mr Robert Chote, the chairman of our OBR. As well as making the case for the independence of the Hungarian organisation, Mr Chote and his fellow signatories argued that:
“Developments in Hungary are also of a more general interest for the viability of independent fiscal monitoring. It is easy for a government to be in favour of this in principle. It is more difficult to stand criticism when it is actually delivered”.
How true that is—and how important, therefore, is the amendment before us, the purpose of which is to support the independence and the financial integrity of the OBR.
If the OBR behaved in a manner that did not suit the Government, for example by undertaking extra studies that cast government policies in an unfortunate light, the easiest way to discipline those independent-minded souls would be to cut their budget, forcing them back to their core function and thereby diminishing their independence. Control of the budget is an important means of controlling any organisation, as the Swedish Minister of Finance made clear.
The amendment seeks to provide the OBR with the protection of independent scrutiny of its budget. The budget must be published and made available for scrutiny by the Treasury Committee of another place. The OBR would not have to fight its corner; Parliament would fight its corner for it. This would give the Treasury Committee the opportunity to have its say on whether any inappropriate limitations were being placed on the OBR’s operations by budgetary means. If you like, the amendment provides scope for the Treasury Committee to act as the financial champion and protector of the independence of the OBR.
The Minister should mark the words of Mr Chote in his letter in the Financial Times, and accept the amendment to ensure that the OBR’s budget is protected, even when it speaks unwelcome truth to those in power. I hope the Minister can give me some reassurance that this issue will be taken seriously and will be considered for government amendment at Third Reading. I beg to move.
My Lords, given that I was chairman of the Treasury Committee in another place for something like 14 years, I am naturally rather sympathetic to the amendment. However, it does not seem to do what the noble Lord, Lord Eatwell, said it does. It does not enable the Treasury Committee to control the budget, but enables it to ensure that the budget is scrutinised after being published. This is something which my noble friend should readily accept, because it would be very surprising if the annual operations budget were not to be published. I should have thought that that was consistent with the whole argument for transparency which we have heard from the Government throughout the debates on this Bill, and that it should be virtually automatic. It is equally likely that the Treasury Committee would wish to scrutinise the budget, once published. My noble friend might of course argue that it is unnecessary for the amendment to be made, but, if it were, some reassurance would be given to those expressing the kind of view expressed by the noble Lord, Lord Eatwell. It would certainly be right for the budget to be published and for the appropriate body to look at it to be the Treasury Select Committee in another place.
My Lords, I will disappoint the noble Lord, Lord Barnett, by agreeing with the amendment, or rather with its spirit, because it is important that the funding of the OBR is as transparent as possible. We need an arrangement that will last. We all know that the Treasury has great power and I accept the argument that the OBR needs the protection of a transparent process. Of course, nothing would in the end prevent the OBR from suffering in respect of its budget if the Government wished that to happen and could get the support of Parliament, but it is important that that process should be transparent. I recognise the argument that it is already evident from the public expenditure process that there is nothing to stop the Treasury Committee being involved, but I support the principle of making a specific provision for the funding of the OBR that should be as transparent as possible.
The detail in the amendment that I am not happy with is the suggestion that the committee should investigate the annual budget. It is important that if you are to have a successful operation such as the OBR, it should know what the prospects for its finances are, stretching beyond one year. Subjecting it to an annual budget process might not do the job. The noble Lord, Lord Eatwell, already referred to Sir Nicholas Macpherson’s existing letter talking about a financing process that stretches some way ahead.
I therefore support the principle of the amendment and hope that it is possible to find a way of expressing its intentions that provides reassurance that a transparent process will be in place and will stretch for somewhat longer than the annual budget round.
The noble Lord, Lord Burns, never disappoints me. I am delighted to see that he agrees with the principle of the amendment. I agree with the principle but I disagree with the amendment. Once again, my noble friend Lord Eatwell ignores this House. He would like to see the scrutiny undertaken just by the Treasury Committee of the House of Commons. I have no objection to that and, indeed, I would be delighted if the Minister accepted it, because the Treasury Select Committee of the House of Commons, under different chairmanships, has usually done a great job and continues to do a very good job now under a Conservative chairman. Why does my noble friend not wish to have this scrutinised, as my noble friend Lord Peston and I proposed in Grand Committee, by the Economic Affairs Committee of the House of Lords? As a former chairman, I am prejudiced and my noble friend Lord Peston was a longer-term chairman of the committee. It has always done an excellent and very independent job in this House.
If the Minister is minded to accept an amendment occasionally, and can ignore the word “resist” in his brief, perhaps he might be willing to add to the amendment the words “the House of Lords Economic Affairs Committee should also carry out scrutiny”. We now have a former Chief Secretary to the Treasury chairing the committee and doing an excellent job. On this occasion, I hope that the noble Lord, Lord Sassoon, will accept the amendment as amended by my suggestion. I beg formally not to move.
My Lords, perhaps I may just get my head round the formal non-moving of an amendment that has not been put down. I shall try to give the noble Lord, Lord Eatwell, the reassurance that he seeks in this area. The Government support the spirit of the amendment. Transparency and parliamentary scrutiny of the OBR’s budget are absolutely central to safeguarding its independence. I do not think that there is any difference between us on that point.
The next issue is getting a proportional arrangement which achieves the objective. The effect of the proposed amendment has already been achieved. In line with the Treasury Select Committee's recommendation, the annual budget of the OBR will be identified separately in the Treasury's estimate and it will be available for the Treasury Committee to scrutinise in another place. Nevertheless, we have gone further than the Treasury Committee asked for in order to enhance the transparency of the OBR’s budget and critically to protect it from any suggestion of politically motivated cuts. Again, in line with the Treasury Select Committee’s recommendation, the OBR will also be able to submit to the Treasury Select Committee an additional estimates memorandum alongside that of the Treasury in which it can explain for itself the reasons for changes in the available budget for the year ahead. I think that will go beyond what is proposed, in effect, in this amendment because the OBR will be free to explain in full what any changes in the budget mean.
I agree with the noble Lord, Lord Burns, that if we need to be concerned about anything here it is the multi-year aspects of it, which the proposed amendment does not address. The OBR has already been provided with an agreed and publicly documented multi-year budget, so that an annual budget exercise cannot be used to exert hidden pressure on the OBR. This specific element has been welcomed by the IMF.
I will divert for a moment to address one or two of the points raised by the noble Lord, Lord Eatwell, on some of the international experience in this area. While I am sure that the Toronto Globe and Mail is a fine source of reporting, I think it is relevant to remember that the Canadian Parliamentary Budget Officer is really not in any comparable position to the OBR. Its budget is not separately identified anywhere within the estimates of expenditure presented to the Canadian Parliament. It is a very different office from the one we are looking at. The Parliamentary Budget Officer in Canada was not given an agreed and published multi-year budget. I think we are in very different territory from Canada.
Hungary was mentioned. It is interesting to note that Hungary’s Fiscal Council chairman pointed out—I do not know whether this is correct—in the context of saying it was very, very rare to introduce substantial changes or abolish fiscal councils that the only example he could point to was Venezuela under Hugo Chavez abolishing its fiscal council. So there are one or two examples but they are not comparable examples. It is precisely to guard against any suggestion of such interference that we have put in place the measures that we have.
In trying to give the noble Lord the reassurance he seeks, we have discussed already the responsibility of the OBR’s non-executives. Critical to that is their duty to report on anything that appears to them to constrain the OBR’s discretion. Of course, that would include any attempt to control the OBR through manipulating its budget. To quote the chair of the Treasury Select Committee:
“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”—
we, the Treasury Select Committee—
“to do our work”.
The package of measures we propose for the OBR in the Bill follows the recommendations of the Select Committee and in the judgment of the Treasury fully reflects that intention. The chair of the OBR has already made clear that he has adequate resources and that he will promptly raise any issues on funding with the Select Committee—a very public forum in which to raise any concerns.
Finally, I will quote Robert Chote at his pre-appointment hearing in front of the Select Committee. He said:
“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”.
I suggest that there are a considerable number of safeguards in place. Indeed, we go further than the noble Lord’s amendment because we believe that the multi-year dimension is as important as, if not more important than, the single year dimension to which his amendment refers. In view of the reassurance that I have been able to give him, in particular pointing to the role that we have just now confirmed for the non-executives, I hope that he will withdraw the amendment.
My Lords, I am grateful to all noble Lords who have taken part in this short debate, not least because there seems to be a unanimity of purpose around the House. Perhaps I may address a couple of the points that were made. The first is the point made by the noble Lord, Lord Burns, supported by the noble Lord, Lord Sassoon, about the word “annual” in my amendment. I think they are absolutely right. It should refer to the budget; the word annual should be taken out, then everything would flow quite nicely. However, the noble Lord, Lord Sassoon, still does not quite grasp the idea that the OBR should not have to fight its own corner but should be given parliamentary protection in the budgetary field for the long term, not simply for the period for which Sir Nicholas Macpherson’s letter is relevant. We are looking beyond that provision.
The one element from which I derived some comfort in the reply of the noble Lord, Lord Sassoon, was the issue of a separate line in the Estimates, which will provide the Treasury Select Committee with the opportunity separately to identify the budget of the OBR. My amendment would require that to be brought for scrutiny, rather than it simply being available, but I am willing to accept that that is a small point.
I suppose that I should accept being chided by my noble friend Lord Barnett for leaving the House of Lords Economic Affairs Committee out of the amendment. I felt that since this was particularly an expenditure matter, it should be handled by the committee in another place. I am willing to stand corrected on that point.
However, I feel that there is general unanimity around the House that this issue is important in sustaining the independence of the OBR. I am grateful for the assurances that the Minister has given. I beg leave to withdraw the amendment.
Amendment 7 withdrawn.
Clause 4: Office for Budget Responsibility
8: Clause 4, page 2, line 29, after “it,” insert—
“( ) a comparison of the fiscal and economic forecasts previously prepared by it with the corresponding forecast prepared by the Bank of England together with an analysis of the difference between the two,”
My Lords, I beg to move Amendment 8 in my name, with which it will be convenient to discuss Amendment 9, in the name of the Minister, and Amendment 10, which is my amendment to the Minister’s amendment. In some ways, this grouping is rather too extensive, but several important points are enshrined in the amendments.
I will start with the Minister's amendment, which states:
“Any Report which the Office makes in pursuance of its duty under this section must include … the main assumptions made by the Office, and … the main risks which the Office considered to be relevant”.
We debated both those points at considerable length in Grand Committee, so I certainly welcome the fact that the Minister has tabled the amendment. If we are to be able to appraise the forecasts made by the OBR, it is crucial that we should know on which assumptions they have been made, so I am glad that we shall now be able to do that. Secondly, we should also know the OBR’s assessment of what risks it considered to be relevant—with some indication, I hope, of the probability of this or that risk being realised—so I am strongly in favour of Amendment 9. I believe that the House as a whole will share that view.
I turn to my Amendment 8, which suggests that the OBR should not only assess the accuracy of its reports in a post-mortem assessment, as is already required in the Bill, but make,
“a comparison of the fiscal and economic forecasts previously prepared by it with the corresponding forecast prepared by the Bank of England together with an analysis of the difference between the two”.
I am concerned that there is an increasing schizophrenia—almost—between, on the one hand, the monetary policy side of things that is managed by the Bank of England’s Monetary Policy Committee and, on the other, the fiscal side. It seems that the Bank of England will operate on one set of forecasts, while the Treasury will operate on the basis of the OBR’s forecasts, supplemented by the forecasts to which the noble Lord, Lord Burns, has referred. It is not helpful to have two separate forecasts being made when we are concerned with the overall position of the management of the economy. Therefore, I hope that my noble friend is able to accept my amendment.
In passing, I will express some concern about the Bank of England’s forecasts. If I may divert for a moment, I noticed in the Economist magazine a couple of weeks ago the rather strange statement that the increase in VAT to 20 per cent would, because it will be permanent, be almost entirely passed on. That was a strange thing to say, because the extent to which the increase is passed on should of course depend on the elasticity of demand for the various products that are being taxed. I received a courteous reply from the individual in the Economist who had been responsible for the report. He pointed out that he had relied on a statement made by the Bank of England, which also apparently suggests that the 20 per cent VAT increase will be almost entirely passed on. If that is so, we have an extraordinary number of irrational people selling products in this country. Therefore, I really wonder whether we should rely on the Bank of England’s forecasts as much as we do.
We also had some discussion earlier at Question Time on the position of the Bank of England. That is another matter, although I again express some concern because we always understood from Mr Gordon Brown that the Bank’s sole consideration was to be the rate of inflation, which it was to tackle by use of the interest rate. However, we find that interest rates are not going up at the present time for understandable reasons, which imply that the Bank of England, in making its forecasts and everything else, takes into account a number of factors other than inflation, as Mr Brown said it ought to do. Perhaps my noble friend might indicate in passing whether he thinks that the remit of the Bank of England has changed.
Finally, my amendment to my noble friend’s amendment suggests that there should be
“an assessment of the current output gap and when the Office expects the current economic cycle to end”.
My noble friend previously answered a Written Question from me on what assessment had been made of the movement of the economic cycle, which was an extremely important issue under the previous Government. Mr Brown constantly put great stress on the importance of the economic cycle, but time after time he then changed the date when he thought that the cycle had started and finished. There is a case for having this issue clarified by the Office for Budget Responsibility.
Indeed, the Written Answer from my noble friend referred the matter to the Office for Budget Responsibility, which kindly replied by saying that the OBR had not made any assessment of when the economic cycle had actually begun, although it might do so in future, but it was rather clearer on when the current cycle was likely to finish. The OBR went on to say that it believes that the output gap will steadily decline, as
“we judged that there was an output gap of around 3.25 per cent in the second quarter of 2010. Our forecast assumes that the output gap will narrow by approximately 0.7 percentage points a year from 2013-14”.—[Official Report, 16/12/2010, col. WA 222]
The Office for Budget Responsibility should surely follow this matter very carefully indeed, as that is the whole essence of economic management. Given that we are starting off with excess capacity, it is important in making its forecasts that the OBR assesses to what extent the gap is likely to be closed and, in particular, how quickly it is likely to be closed because of the overall economic situation.
I very much welcome my noble friend’s Amendment 9, but I hope that he may be prepared to accept that, if we do not have a single forecast, there is a case for making a comparison between the forecasts of the Bank of England and those of the OBR and that we should include in the OBR’s appraisal a clear estimate of the position on the economic cycle.
My Lords, I should perhaps speak briefly to Amendment 9 at this stage. I will respond later if other noble Lords speak to Amendments 8 and 10.
On Amendment 9, the risks and assumptions of the OBR in producing its reports are critically necessary for a full understanding of its analysis. Provision to require the OBR to set those out was originally included in the draft charter. However, we recognise that a key purpose of the Bill is to provide appropriate assurances that the good practice already adopted by the OBR will continue. For that reason, Amendment 9 will elevate the provision from the draft charter to the face of the Bill and broaden the requirement to apply to all reports produced under the OBR’s main duty.
On Amendments 8 and 10, the noble Lord, Lord Higgins, will have to suffer the possibility of inconsistent forecasts because that is, in a way, embodied in the independence and separation of the Bank of England. The whole point of an independent Bank of England, and the way the Labour Government set up the independent status of the Monetary Policy Committee and the Bank of England, is that it should be allowed to take an independent view. That independent view will be informed by its own research. This can lead not just to forecasting inconsistency but to policy inconsistency, but that is the price we are going to pay if we think this is an appropriate policy mix. The very distinguished late economist Sir James Meade pointed out many times that this separation could lead to serious policy inconsistency, and he was entirely opposed to its, none the less, that is the way we have constructed policy-making in this country, and that separation will bring with it the possibility—indeed, the probability—of some forecast inconsistency. However, we should note that recently the Governor of the Bank of England has been making many statements about fiscal policy, which is not his territory. That is very unfortunate. He seems to have encouraged the Prime Minister to make comments on interest rates, which are not his territory either. If this separation is deemed to be a good thing by our Parliament and policy-makers, I hope that the governor and the Prime Minister will respect it.
The problem I have with Amendment 10, tabled by the noble Lord, Lord Higgins, is that I do not think the output gap is a precise notion which can be believed if you say it is 2.5 per cent or something like that. In the Budget debate and in the debate on the comprehensive spending review, I argued that it is a statistical construct. It has embedded within it a series of statistical assumptions. It was quite striking that in the first OBR report, the definition of the structural deficit was changed, to the benefit, I might add, of the Government’s arguments. Therefore, I do not want too much credibility to be put on what is a useful indicative statistic. The weight put on it can be taken too far.
I strongly support the Government’s amendments both on transparency of assumptions and consideration of the risks to which the economy might be exposed. The latter issue, with the OBR now being required to talk about the risks to which the economy is exposed, is very important. For example, let us suppose that we had had an OBR of 2006 vintage. That OBR could have expressed concerns about the fiscal risk the economy was subject to by being dependent on such a high proportion of tax revenues coming from just one sector of the economy, that of financial services. It would have had the opportunity to say, in facing that risk, that some diversification of revenue sources might be desirable. Similarly, in defining the sustainability of the public accounts, the OBR should take into account the risk to sustainability generated by the foreign balance and by the savings and spending behaviour of the private sector, and their interactions with the public balances. Providing these insights into the risks of public sector financial management would extend the debate about the public finances in a very useful way and would ensure that the debate is far better informed than it has been in the past. So I would like particularly to add the support of this side for government Amendment 9.
I would like to echo the noble Lord, Lord Eatwell, in two respects; first, in his comments on Amendment 9, which I will not repeat, and secondly, in his comments on Amendment 10. I am dubious about the value of giving enhanced status to an assessment of the output gap or when the economic cycle is likely to end for reasons largely already given by the noble Lord, Lord Eatwell. The output gap is not an absolutely firm context and figure that is easily grasped and measured. As we saw with the previous Government, a lot of weight was put on the economic cycle because the golden rule about government expenditure and borrowing depended on it. The problem was that whenever a difficulty arose, lo and behold, the definition of the cycle changed to push the difficulty back. It proved to be a far more elastic concept than we thought, and the old Ricardian economic cycle that depended on grain crops just does not obtain in quite the same way today. So while I am sure that the Office for Budget Responsibility may well wish to opine on these matters, and it will be quite interesting to know what it thinks, it is of secondary importance in setting government policy. Indeed, because of its somewhat nebulous nature, I would not want us to put too much weight on it again.
I am grateful to the noble Lord, Lord Eatwell, for his support for government Amendment 9, but let me say a few things in respect of Amendments 8 and 10 because my noble friend Lord Higgins has raised important issues. I agree with the spirit of the amendments in both cases, and I shall try to do justice to the points he has raised by explaining how I think the matters are or should be dealt with.
Amendment 8 concerns the question of economic and fiscal forecasts. On fiscal forecasts, a comparison is actually not possible because the Bank does not produce such a forecast. Rather, it incorporates the official fiscal forecast now produced by the OBR into its own economic forecasts, which reflects the expertise within the OBR and the information that the office as opposed to the Bank has access to. So that is dealt with because there is no comparison to be made.
Of course a comparison can be made of economic forecasts and, although I would not express it in quite the terms of the noble Lord, Lord Eatwell, yes, there may be differences—we cannot get away from that. The important point is that comparisons are made, and this is exactly what the OBR is doing. It set out a comparison in its economic and fiscal outlook, which it published in November 2010, and table 3.8 on page 69 of that document clearly sets out the Bank of England’s economic forecast. The OBR has gone further than that because it has also set out its forecast against other key forecasters such as the IMF, the OECD, the EC and the NIESR. So there are those and other opportunities for the OBR’s forecast to be compared, including in the annual report on forecast accuracy and in the external reviews we discussed earlier. There are provisions in the Bill to support the comparison analysis that is already being made in the OBR’s publications. Therefore, in respect of the economic forecasts, while I agree with its underlying principle, the amendment is not necessary.
Amendment 10 provides for the OBR to report on the output gap and the timing of the cycle. On the output gap, the current fiscal mandate is based on the cyclically adjusted current balance and, therefore, in order to assess the likelihood of meeting the mandate, the OBR has to compute an estimate of the output gap in order to calculate the structural deficit. It has produced a forecast for the output gap in all three of the official forecasts it has produced to date and also much supplementary analysis—eight pages of it in the November report.
There is a provision in the charter concerning what data series the OBR should produce. The draft charter states that the OBR must produce:
“An analysis of the impact of the economic cycle on the key fiscal aggregates, including estimates of the cyclically-adjusted position”.
To fulfil this requirement, the OBR must produce an estimate and forecast for the output gap if the fiscal mandate changes. That is already covered.
On the timing of the economic cycle, the noble Lord, Lord Eatwell, and my noble friend Lord Newby have correctly pointed out that we are now in a different position in regard to the economic cycle and its link to the fiscal rules. Under the previous Administration, the timing of the economic cycle was critical to the fiscal rules. It was a judgment under the control of the Chancellor and the controversy caused by changing the date of the cycle in mid-2000 is a perfect illustration of why the OBR has been established. Under the new fiscal mandate, the timing of the economic cycle no longer fundamentally underpins the fiscal rules. This reflects international best practice, where it is acknowledged that judging the end of the fiscal cycle, possibly several years into the future, is extremely difficult and an insufficient basis on which to design rules.
Nevertheless, and despite this, it will be clear from the OBR’s forecast for the economy what its forecast for the economic cycle is over the next five years. One will be able to tell if the OBR expects the economy to move from recession to growth and vice versa. Should the timing of the economic cycle be of particular interest again, I would expect the OBR to dedicate a large amount of analysis to it.
The provisions which support external scrutiny will ensure that OBR analysis is consistent with international best practice, but at the moment, and in stark contrast to the previous Administration, this is a subsidiary point. While I very much agree with the spirit of the amendment, the OBR is already covering these matters. They are dealt with in the charter and it is not appropriate for legislation to go down to this level of detail. I ask my noble friend to consider withdrawing his amendment.
9: Clause 4, page 2, line 32, at end insert—
“( ) Any report which the Office makes in pursuance of its duty under this section must include an explanation of the factors which the Office took into account when preparing the report, including (in particular)—
(a) the main assumptions made by the Office, and(b) the main risks which the Office considered to be relevant.”
Amendment 10 (to Amendment 9) not moved.
Amendment 9 agreed.
Clause 5 : How main duty is to be performed
11: Clause 5, page 3, line 2, after “Office” insert “—
(a) must have regard to those policies, but(b) ”
Amendment 11 agreed.
Clause 6 : Guidance as to how main duty is to be performed
12: Clause 6, page 3, line 9, leave out from “section” to end of line 10
Amendment 12 agreed.
13: Clause 6, page 3, line 14, at end insert—
“( ) If the Treasury proposes to modify the guidance included in the Charter by virtue of this section, a draft of the modified guidance must be published at least 28 days before the modified Charter is laid before Parliament under section 1(6).”
Amendment 13 agreed.
Clause 15 : Employment etc of former Comptroller and Auditor General
14: Clause 15, page 5, line 36, leave out “such person as may be so specified” and insert “the Advisory Committee on Business Appointments and abide by the decisions of the Committee”
My Lords, I do not intend to detain your Lordships for very long because this is exactly the same amendment that we debated in Grand Committee on 9 December. I did not press the amendment or the argument at that time because I was greatly encouraged by the debate, and in particular by the response of the Minister who certainly seemed to be in listening mode on that occasion.
I was a little disappointed to receive a letter from the Minister dated 21 December, listing the amendment that he has tabled this afternoon. I refer to the Government’s Amendment 15. This says that the Public Accounts Commission will have a role in specifying who should be consulted by former Comptrollers and Auditors-General on possible future appointments that they might wish to take up. My amendment says that this advice should be given by the Advisory Committee on Business Appointments.
As I said, I do not wish to detain your Lordships, but I point out that the amendment is based on the 15th report of the Public Accounts Commission. My noble friend Lord McFall was a member of that commission when it reported in March 2008. It referred to the subsequent employment of former Comptrollers and Auditors-General and said that a,
“C&AG should be required under the terms of his or her contract to consult the Advisory Committee on Public Appointments”—
it should have been “on Business Appointments”—
“(currently chaired by Lord Mayhew) before accepting any employment whatever after leaving the post of C&AG and to abide by the decisions of that Committee”.
The advisory committee is now chaired by the noble Lord, Lord Lang of Monkton, and its remit is simple:
“The Advisory Committee on Business Appointments is an independent body which provides advice to the Prime Minister, the Foreign Secretary, or other Ministers if requested, on applications from the most senior Crown servants who wish to take up outside appointments within 2 years of leaving Crown service”.
That body has the experience and background to provide the proper advice for any senior civil servant who wishes to take up an appointment after leaving public service. It would in my view be the appropriate body to give advice to former Comptrollers and Auditors-General. For the life of me, I cannot understand why the Government have not accepted this. Perhaps the Minister might say why it is that the Government now want to involve the Public Accounts Commission—another layer in between the time when a former Comptroller and Auditor-General would have to consult before he can consider taking up some other appointment. It may well be that the Public Accounts Commission will say to that former Comptroller and Auditor-General, “You must seek advice from the Advisory Committee on Business Appointments”. I do not know why we do not go straight to that point in the first place. I had hoped that the Minister would have put that in his amendment. He has not done so and I should be grateful to hear his response.
My Lords, I see the Chamber filling up. This amendment is clearly attracting a lot of interest but, just in case noble Lords have come for some other business, let me deal briefly at this stage with Amendment 15, together with Amendment 14 tabled by the noble Lord, Lord Touhig. Having reflected on the points made on this issue in Grand Committee, I agree that clarification is indeed merited on this question of the C&AG taking up future offices or appointments. That is why the Government’s Amendment 15 makes it clear that the Public Accounts Commission would specify the person or body, such as the Advisory Committee on Business Appointments, that a former Comptroller and Auditor-General should consult before he or she takes up another office or position having left the office of C&AG. We have come forward with that important clarification.
Amendment 14, tabled by the noble Lord, Lord Touhig, seeks to name the Advisory Committee on Business Appointments as the body that former C&AGs must consult. However, there is a difficulty in naming a particular body in legislation because names and responsibilities may change over time. The fact that the body recommended in the original report from the Public Accounts Commission is different from that in the amendment makes that very point. While we need to have a degree of clarification which was not in the original Bill, writing in a particular body that exists now but may not exist in time—and was not that recommended only a short time ago by the Public Accounts Commission—means that we need to have the balance of flexibility but the certainty that the Public Accounts Commission will nominate a body up front.
The Treasury has carried out a search to see whether we could find any similar requirement elsewhere in legislation. The only mention at all of the Advisory Committee on Business Appointments is in relation to the obligation placed on it under the Freedom of Information Act, so there is no equivalent hard-wiring in legislation of its other responsibilities to deal, for example, with appointments for former Ministers. We absolutely share the noble Lord’s desire that former C&AGs should not just listen to but take to heart the advice of the nominated adviser, just as Ministers and civil servants do. Perhaps it is relevant to say that my understanding of the position of the serving C&AG is that he would be willing to consult any independent authority that the commission nominates about any employment that he proposed to take up after leaving office. This was written into the letter of appointment that he signed before taking up office. What was not written into the letter was a requirement for the C&AG to abide by the decision of the independent authority. It was expected that the decision of that authority would be made public and that that would be sufficient to ensure compliance.
In respect of future C&AGs, I think it is fair that they should know which person they needed to consult at the start, before they take on the office. It is expected that the person to be consulted should be specified in the appointment letters of all future C&AGs, which would parallel the arrangements for Ministers and senior civil servants. The terms of the C&AG’s appointment are agreed between the chair of the Public Accounts Committee and the Treasury, on behalf of the Prime Minister, and would have to be signed off by the prospective C&AG before he or she takes up office. I believe that with the government amendment we are bringing forward, along with how I have described that it will work in reality, we have sufficiently covered all the bases intended by the noble Lord’s amendment without getting into a position where we might nominate a body that could be inappropriate in a number of years’ time. On the basis of that explanation, I ask the noble Lord to consider withdrawing his amendment.
I am grateful to the Minister because he is a man of his word: he has sought to clarify the matters that we discussed in Committee. He made a fair point in saying that, if we specify a body in legislation, that body could disappear or change with future legislation. The Public Accounts Commission referred to the Advisory Committee on Public Appointments, but I do not think that it even existed. I think that the commission was mistaken and that it should have referred to the Advisory Committee on Business Appointments. I suspect that ultimately we will reach the point that I have been arguing for and that it will in fact be the Advisory Committee on Business Appointments, although the Minister is going to take us on a bit of a route, going through the Public Accounts Commission, to get there. It is a bit like me travelling to Wales via Scotland but I am sure that we will get there in the end. I beg leave to withdraw the amendment.
Amendment 14 withdrawn.
15: Clause 15, page 5, line 36, leave out “may be so specified” and insert “is specified by the Commission”
Amendment 15 agreed.