Budget Responsibility and National Audit Bill [HL]
Lord Burns Excerpts(15 years, 2 months ago)
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Lord Peston
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.
Lord Burns
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.
Lord Eatwell
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.
Lord Higgins
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.
Lord Burns
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.
Lord Sassoon
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.
Lord Burns
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.
Lord Sassoon
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”.
Lord Sassoon
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?
Lord Burns
I had assumed that the term “economic policy” encompassed all of the things that the Minister has just mentioned—taxation policy, expenditure policy, pensions policy or anything that would affect the public finances in one way or another.
Lord Sassoon
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).
Lord Higgins
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.
Lord Burns
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.
Lord Sassoon
We are all trying to get to the same end. I do not think that this is a rerun of what we were talking about under Clause 1 on the charter for budget responsibility. If it were, I would not carry on with a sympathetic tone. If it is trying to reopen—
Budget Responsibility and National Audit Bill [HL]
Lord Burns Excerpts(15 years, 3 months ago)
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Lord Burns
My Lords, I propose to address my remarks to those parts of the Bill that deal with budget responsibility. I, too, fully support the principle of publishing a charter for budget responsibility, including the objectives for fiscal policy and the means by which they would be attained. The challenge is to have a framework that both constrains fiscal behaviour in a responsible way and is capable of dealing with the range of surprises and unexpected events that inevitably occur. All attempts to frame budget responsibility in this way have at some stage met that particular problem—some have dealt with it better than others.
The main innovation in this Bill is the formation of the Office for Budget Responsibility. I agree that this has the potential to increase confidence in the projections and to reduce suspicion that they are modified by government to give the impression of a greater chance of success. I agree with the noble Lord, Lord Turnbull, that support for this independent scrutiny does not require a belief that there is widespread fiddling in fiscal projections. I also agree with him that there is a natural tendency for a Government to believe that their policies have a better chance of success than many sceptics will claim or, indeed, than often tends to be captured by the official forecasting process. Sometimes they are right. On other occasions, they are wrong. Sometimes, they are very badly wrong.
Given the natural degree of uncertainty and error in any projections of this kind, we should not overstate this problem. Interventions by government in projections tend to involve some bias towards optimism. However, it has to be recognised that some of that is to counterbalance a natural bias towards pessimism, sometimes among the officials in the department. We all agree that it is better to remove any doubts about this. I wholeheartedly support the idea of scrutiny and of having an independent office.
When the idea was first mooted, I, along with the noble Lord, Lord Turnbull, were rather attracted by the hope that it might be an audit process—or what he has called a validation model—and that its main role would be to test the validity of assumptions used in the forecast and to concentrate on the question of the prospect for the underlying public finances, taking into account the position of the business cycle. The Government have taken a different approach. This Bill involves outsourcing the responsibility for the published forecasts, including the main economic magnitudes as well as the public finances.
It is no secret that most of the Chancellors with whom I worked had the ambition to hand the responsibility for forecasting to someone else. That is not surprising, given the limitations and the inevitable range of error around any forecasts for output public spending and tax collection. For right or wrong, most Chancellors end up damning forecasts and the requirement to publish them. I will be interested to see whether this new arrangement ends that long history. Personally, I am not sure that having forecasts done somewhere else entirely solves the problem for Chancellors, but that is not the issue for today. The decision has been made. However, we should be in no doubt that forecasts are uncertain—sometimes very uncertain—and that any organisation that builds its reputation on the accuracy of its forecasts is going to have a difficult time on occasions, whether it is inside or outside the Treasury. I fear that that will also apply to the OBR at some stages.
This decision has some important implications for the structure and operations of the OBR. It is something that has to be considered when framing its remit and governance. Many of the details involved in preparing the forecast for the economy—particularly public finances—require a close working relationship with officials, particularly when it comes to public expenditure and taxation. Furthermore, as the Bill requires the forecast to be produced on Budget Day, the OBR has to be an insider as far as the Budget is concerned. Consequently, it will inevitably work closely with the Treasury, which I fear will make it more difficult to have a clear line of separation between the OBR and the Treasury. On occasion this will cause suspicion but I fear that it is a fact of life. Given the OBR’s responsibility in this regard, it is simply not possible to have the degree of separation that some people would like to see. It is an integral aspect of the decision to make the OBR responsible for the forecasts.
I emphasise the whole question of the OBR’s independence. I fear that this will not be secured by putting it into a different building, employing completely new people or giving it unlimited resources. Independence is much more about the quality of the people who are involved and depends crucially on the remit that is given, the clarity of that remit, the governance structure that surrounds the organisation and whether that enables us to see much more clearly the kind of job that it is doing.
To my mind, the biggest danger to the independence of the OBR is if it is dragged into the political debate through being asked to give an opinion on political issues or on issues that cannot be verified by outcomes. I strongly believe that, if these arrangements are to have any chance of working, the OBR should be required to limit its activities to assessing whether the Government’s objectives will be met. I am particularly concerned that it should not be involved in making judgments about hypothetical proposals or in making impossible comparisons with counterfactual outcomes. It should not be pulled into the political debate about the effects of alternative policy. Therefore, it is important that we should be clear not only about the things that it has to do but about the things that it should not be doing. For example, the OBR should not be asked to give a view on the effects of a Budget by comparing that with someone’s alternative Budget, or even with not having a Budget at all. It should not be asked to widen its remit or to give a view on the impact of packages of measures, whether framed by government or opposition. Therefore, like other noble Lords, I am concerned about the open-ended nature of Clause 6 and the ability to move the remit gradually over time, as clarity of remit will be crucial to the body’s success.
It was clear that the interim OBR was handed a virtually impossible task in presenting a pre-Budget forecast shortly before the Budget was published. That opened up the opportunity for analysts to try to interpret from the two what the effect of the Budget would be, which, of course, gets one into deep political debate. I hope that in the future this will not be the case. Therefore, I am anxious that there should not be remit creep. If there is any danger of this, it would be enormously helpful if it could be made clear by the Minister or in the Bill how far the remit can be stretched and what degree of discretion is left with the Treasury to change the remit given to the OBR.
My next point relates to governance. It is proposed to have a chairman and two additional persons who form the Budget Responsibility Committee and who are required to have relevant knowledge or experience. In addition, it is proposed to have at least two persons, who are described in the Explanatory Notes as “non-expert”, as part of that office. I do not find this distinction between experts and non-experts helpful, particularly in this area of forecasting and public finances. It is much more helpful to think of it in the terms mentioned by a number of noble Lords this afternoon—that is, the distinction between executive members and non-executive members of the OBR.
Clearly, the executive members—essentially, there are three experts—make up the Budget Responsibility Committee and are responsible for the published work. However, in my view the Bill should be much more specific about the role of the non-executive members. I suggest that they should not be involved with the published content but should be consulted if any issue of process emerges during the forecasting rounds. Similarly, they should be involved in post-mortems of how the process worked in relation to content and relationships with the Treasury and other relevant bodies. They can give guidance and support the independence of the OBR, if this question ever becomes an issue, and help the executive members to navigate their way through the inevitable issues that will arise from month to month in determining how the remit should work and how they should respond to pressures from the Treasury and to the whole variety of issues that people who have been non-executive directors know come before boards on a regular basis. They should also be involved in setting the OBR’s own budget and adding weight to any issues over resources that the OBR has. Along with a number of noble Lords, I would be grateful to hear from the Minister whether this type of interpretation accords with his view of the role of the non-expert members of the OBR. I agree with others that it would be helpful for the Bill to be much more specific about the role of the non-executive members.
This takes me to my final point, which relates to resources for the OBR. The main weakness of the proposed structure is the dependency of the OBR on the Treasury for resources, both financial and with regard to some of its people. I have no doubt that, in the early days, this will not be an issue, but it could become an issue. This could work either way. Public bodies that work without a budget constraint have a tendency to grow and grow. On the other hand, we know that one way of constraining the independence of any body is to leave it underresourced. Along with the noble Lord, Lord Myners, I agree that some transparency and safeguards need to be built in.
I would like a role to be given to the Treasury Select Committee in another place with respect to resources. For example, the budget for the OBR could be published and scrutinised by the Treasury Select Committee. The OBR should have the opportunity to set out to the committee whether it believes that it has the resources that it needs to meet its remit. If the chairman of the OBR thought that the OBR was being underresourced, there should be an opportunity to raise that question with the committee. Similarly, the committee could have the opportunity of testing whether the budget for the OBR was growing too rapidly. Simply having the finances of the OBR as a part of the Treasury’s expenditure programme may be all right on this occasion, but some years down the line it may not be quite such a comfortable process.
I end by noting that my former colleague, Alan Budd, showed typical wisdom and independence when faced with the difficult task of setting up the interim OBR. I have full confidence in Robert Chote’s ability to carry out this extraordinarily difficult role. The key to making a job of this type work is to be absolutely clear about its remit, the extent of that remit and the governance arrangements that surround it and to ensure the certainty of the organisation with regard to its resources. I fear that confusion in any of these areas will in the end be the biggest danger to independence and to the success of what otherwise I wholeheartedly support.