Budget Responsibility and National Audit Bill [HL]

My Lords, the Budget Responsibility and National Audit Bill makes provision to enhance the transparency and accountability of the public finances. The Bill has two main subjects: first, it establishes the Office for Budget Responsibility on a statutory basis as part of broader reforms to the UK’s fiscal framework; secondly, it modernises the corporate governance of the National Audit Office. I will speak to each subject in turn. Fiscal discipline is perhaps the single greatest priority for this Government. We are all aware of the current fiscal climate and the situation that we are in. To address that situation, the Government are taking action on a number of fronts. In June, the Chancellor announced the Government’s intention to eliminate the structural current deficit in this Parliament and to put debt on a sustainable downward path. We set this out through our new fiscal mandate. Last month, the spending review comprehensively set out the spending reductions that will deliver this mandate. The plans are tough, but they are fair and deliverable. Now, through the Bill, the Government are strengthening the framework of the UK’s fiscal institutions. The greatest single step forward is the establishment of the independent Office for Budget Responsibility, which will make independent assessments of the public finances and the economy. Up until the new Government’s first Budget, the responsibility for producing the official forecasts had rested with the Chancellor. The key judgments were made by Ministers, but the possible incentive to forecast optimistically, whether on lower borrowing or higher growth, led to scepticism over the credibility of the forecasts. Budget forecasts over the past decade consistently underestimated borrowing, compared to both its actual level and to what other independent forecasters expected at the time. The coalition Government intend to take a different approach. We have removed the responsibility for forecasting from Ministers and given it to independent experts. The independence of the OBR’s judgments will ensure that policy is made on an unbiased view of future prospects. The establishment of the OBR is a reform that has been welcomed by both the IMF and the OECD. In its recent Article IV report on the UK, the IMF has said that the OBR is, "““a welcome step toward strengthening the budget process””." The OECD has said that the OBR is an important initiative in improving public confidence. The UK is now one of the few advanced economies in which an independent fiscal institution produces the official forecast. It is worth emphasising this point because it influences many aspects of the legislation. As I have explained, the establishment of the independent OBR will completely overhaul how the Budget is put together—indeed, it already has. The OBR was set up on an interim basis immediately after the coalition was formed. Led by Sir Alan Budd, in only a few weeks the OBR produced an independent assessment of the economy and public finances both ahead of and as part of the emergency Budget in June. It also scrutinised the Government’s assessments of the cost and yield of budget policy decisions and confirmed that we are on course to meet our fiscal mandate. Great strides were also made in transparency. More information was published than ever before—a fact noted by both the Treasury Committee and the IFS. The final task of the interim Office for Budget Responsibility was to provide advice on how the permanent, statutory OBR should be established. I am happy to report to the House that the Bill is designed in line with the detailed recommendations made by Sir Alan Budd in his letter to the Chancellor. We are now moving to permanent arrangements and a new Budget Responsibility Committee is in place, to which Robert Chote, Stephen Nickell and Graham Parker have been appointed. Their appointments were subject to the confirmation of the Treasury Committee. The resources made available to the OBR have been increased. There has been a transfer of technical forecasting capacity from the Treasury to the OBR and a transparent, multi-year funding settlement has been agreed for the spending review period. Robert Chote has also announced a new location for the OBR’s offices, outside of the Treasury building. I turn to the specific provisions of Part 1. The Bill will repeal the previous Government’s fiscal framework, including the Fiscal Responsibility Act 2010, and replace it with reformed and streamlined provisions. Clause 1 requires that the Treasury must produce a charter for budget responsibility, which will set out the Government’s objectives for fiscal policy, particularly the fiscal mandate. Clause 2 requires the Treasury to produce a budget on an annual basis. Clause 4 sets out the main duty of the OBR to examine and report on the sustainability of the public finances. The Bill also makes explicit provision that the OBR has complete discretion over how it carries out its statutory duties. This is a broad remit and is not limited to forecasting. However, at a minimum the OBR will be required: to produce economic and fiscal forecasts at least twice a year; to make an assessment on the likelihood of the Government meeting their fiscal mandate alongside those forecasts; to publish a sustainability report at least once a year; and to publish a report on the accuracy of its forecasts at least once a year. Clause 5 lays down a set of principles that will guide how the OBR goes about fulfilling its remit. The OBR must perform its duty objectively, transparently, impartially and on the basis of government policy. These principles protect independence and ensure a clear separation between analysis and policy-making. Analysis is rightly the domain of the OBR, but policy-making is the responsibility of publicly elected Ministers. The charter for budget responsibility will set out further details on the OBR’s remit and a draft will be made available to the House. The establishment of the OBR takes executive responsibilities for producing economic and fiscal forecasts out of the hands of Ministers and entrusts them to an independent body. The OBR will report directly to Parliament on the public finances and the members of the Budget Responsibility Committee will be available for select committee scrutiny. The OBR’s forecasts and analysis will be laid directly before the House. On funding, there will be separate reporting of the OBR’s expenditure in the estimates that the Treasury presents to Parliament. In addition, the OBR will be able to submit an additional memorandum alongside that of the Treasury. Written Questions will be passed to the OBR to respond to. All these measures will enhance the ability of Parliament and the public to hold the Government to account for their fiscal policy. In terms of institutional status, the Bill establishes the OBR as an executive non-departmental public body. This status gives the OBR its own legal identity. Conferring Crown status allows appropriately skilled civil servants to move easily to and from the OBR. The OBR’s executive responsibilities are to be undertaken by the three-person Budget Responsibility Committee. Its members will be appointed by the Chancellor, but the Bill provides the Treasury Select Committee with a veto over their appointment and dismissal. The Chancellor has said that he is giving the Committee this veto to ensure that there is no doubt that the individuals leading the OBR are independent and have the support and approval of the Committee. A chairman will lead the BRC and run the office. All staff will report to the chair, who will control the hiring and firing of the staff. In addition, there will be at least two non-executive members to provide support and constructive challenge. For the BRC and its staff to produce the best possible forecasts and analysis, they will need access to the necessary resources and information. Clause 9 gives the OBR a statutory right of access to all Government information that it may reasonably require. To facilitate close working, memorandums of understanding will set a framework for the working relationship between the OBR and other government departments. The provisions of Part 1 deliver the coalition’s aims of increasing transparency and enhancing accountability for the public finances; the same aims apply to the scrutiny of public expenditure, which is the subject of Part 2 of the Bill, to which I now turn. Part 2 of the Bill modernises the governance of the National Audit Office. The NAO is best placed to assess the Government’s use of public funds, especially in the current climate. Effective independent oversight of spending is critical when public resources are under such pressure. The provisions of the Bill strengthen the resilience and integrity of the body. Noble Lords will be aware that very similar provisions were included in the previous Government’s Constitutional Reform and Governance Bill but that there was no time for the House to consider these provisions at the end of the Parliament, so they were lost at that time. This Bill represents the earliest possible opportunity in the new Session to bring them before the House. The provisions in Part 2 implement recommendations made by the Public Accounts Commission following its review of the NAO’s corporate governance arrangements. Clause 11 confirms that the office of the Comptroller and Auditor-General will continue. The C&AG will be an independent officer of the other place who will be limited to a single term of 10 years. Clause 20 provides for the establishment of the new National Audit Office as a corporate body. Of course, the NAO already exists, but Clause 20 incorporates it formally for the first time as a body corporate. The new NAO’s functions include: providing resources for the C&AG’s work; advising him on that work; and approving certain services. The NAO will be able to support and challenge constructively the C&AG’s decisions, but it may not prevent him from carrying out his statutory responsibilities. The NAO will have a majority of non-executives and be led by a non-executive chair. The C&AG will be the chief executive but will not be an NAO employee. I emphasise that those provisions do not compromise the discretion of the C&AG in forming audit judgments and in carrying out value-for-money studies. When the provisions were discussed in the other place during the passage of the Constitutional Reform and Governance Bill, both the then chairs of the Public Accounts Commission and of the Committee of Public Accounts supported them. Schedules 2 and 3 set out details on the new NAO and the relationship between the new NAO and the C&AG. Schedule 6 provides a framework power to enable the National Assembly for Wales to legislate for the governance arrangements of the Wales Audit Office. The provisions in the Bill are a key part of the Government’s fiscal reforms. They will provide a strong institutional framework for the future and help secure the sustainability of the public finances. I beg to move.