Budget Responsibility and National Audit Bill [HL]

My Lords, I will confine my comments to the Bill’s first 10 clauses, which refer to the Office for Budget Responsibility. Depending on the answers that the Minister gives, I may or may not be minded to propose amendments for the Committee stage. Clearly, a particularly important answer will be that to my noble friend Lord Eatwell’s suggestion that the Bill be divided and that the OBR part be subject to proper pre-legislative scrutiny. I am broadly supportive of the intention behind the first 10 clauses, but I believe that the critical question must be around the independence of the Budget Responsibility Committee. As noble Lords have already noted, there is no reference to independence when describing the role and work of that committee. The OBR committee got off to a wobbly start—assumptions about the forecast for the economy were changed without full and proper disclosure and data were released early—but the fault, in my view, lay not with the members of the interim committee of the OBR but with the politicians who chose to use the OBR in the way that they did. That said, the Government have recognised the need to work hard to repair the damage done to the concept of the OBR, including by involving the Treasury Select Committee in the appointment of members of the OBR and in reviewing their resignations as well as in the appointment of what appears to be an excellent chairman of the committee of the OBR. The tests that need to be set for the committee of the OBR relate to its independence, the transparency of its processes and the professionalism or objectivity of its work. It is clearly important that the committee of the OBR should be as independent of the Treasury as possible while recognising the reality—as described by the noble Lord, Lord Turnbull—of the need to work closely with people involved in the preparation of budgets and economic forecasts within the Treasury. The leadership and the membership of the committee are critical in that respect, as are the location and staffing of the OBR. I am delighted to see that the OBR is moving to premises outside the Treasury; I hope that at all times the staffing of the OBR will also be appropriately independent of the Treasury. The independence of operations is covered in Clause 6(3), which deals with the processes of the committee of the OBR in respect of the guidance issued under the charter. My noble friend Lord Eatwell is absolutely right that there is considerable scope for mischief and hazard around the guidance process that is envisaged and the way in which the OBR is circumscribed. Clearly, the guidance given could potentially seriously limit the work and independence of the committee of the OBR. Indeed, Clause 6(3) seems to override the requirement under Clause 5(2) that the Office for Budget Responsibility—and, presumably therefore, the committee—should perform its work ““objectively, transparently and impartially””. Perhaps, to be complete, that provision should also state, ““but subject to any limitations that the Government of the day might wish to place in respect of those three criteria under the guidance that is issued””. The Chancellor has described the OBR as creating a rod to beat his own back, but I suggest to the Minister that it will be less a rod than something that could be used gently to tickle the Chancellor if the guidance provided under the charter should be such as to limit the freedom of the committee. I do not believe that that is the Government’s intention, so I suggest that, prior to Committee stage, the Minister look again at the wording of the Bill. To his great credit, the Minister has shown a willingness in previous debates to look at the drafting of Bills, to listen to what the House says and to bring forward his own amendments—I think in particular of the Terrorist Asset-Freezing etc. Bill—so I hope that he will look at the way in which, in the hands of a different Government, the proposed charter and guidance could be used severely to limit the operations of the committee of the Office for Budget Responsibility. I am particularly keen to hear from the Minister whether, under his interpretation of that wording, the committee of the Office for Budget Responsibility would be free to launch reviews on its own initiative or whether such reviews could be launched only with the prior approval of the Treasury and whether, if the OBR launched such reviews, it would need first to discuss their contents with the Treasury before they were published. As the Bill stands, I do not think that the committee of the OBR can be described as independent by virtue of Clause 6(2) alone, particularly to the extent that that might be inconsistent with Clause 5(2). It would also be helpful if the Minister, in looking again at the drafting of the Bill before Committee stage, could reflect on the meaning of the term ““sustainability”” as used in the Bill. It seems to me that sustainability can be achieved at a number of different levels, particularly in relation to the size of the state. A sustainable fiscal policy might relate to a small state and a small government, but a sustainable approach might also relate to a much larger state and government. There is a danger that, in opining that a particular outcome is sustainable, the OBR might be construed as saying that that is the only sustainable outcome. My view is that there are multiple sustainable outcomes. There is some risk in suggesting that there is a simple test of sustainability that only one configuration of expenditure, tax and borrowing is capable of meeting. Clause 4(3) refers to a need for a review of ““fiscal and economic forecasts””, which is entirely welcome and has my full support. However, noble Lords previously have spoken about the language in which financial forecasts are proposed. We know from the Chancellor of the Exchequer’s recent Statement on the comprehensive spending review and from previous Statements by previous Chancellors of the Exchequer that there has been an increasing tendency to give partial, unbalanced or incomplete Budget Statements and Statements of a similar nature. I urge the Minister to add to the roles of the OBR by requiring it to comment on the completeness, objectivity and balance of such Statements. In the CSR Statement, we saw the right honourable George Osborne mixing up real data with cash data, inflation-adjusted data with non-inflation adjusted data and percentages with absolutes, all of which undermines the credibility of the budget process. We have seen how Sir Michael Scholar at the UK Statistics Authority has improved the presentation of statistics by Government; we need something similar in respect of Government financial statements. Transparency is another important element in the effectiveness of the committee of the OBR. I remember that, when the House debated the establishment of a council for financial stability, the noble Baroness, Lady Noakes, was such a great believer in transparency that she wanted just about every meeting to be appropriately minuted and for those minutes to be published. I thought then—and even more so since I have had a chance to reflect on the matter away from the hurly-burly of office—that was rather a good idea. Will the minutes of the meetings of the committee of the OBR be published? Thirdly, and finally, I come to what I might describe as professionalism, on which I believe a number of issues arise. First, on resourcing, we could clearly create the committee and the Office for Budget Responsibility but then under-resource the body so that it was incapable of doing the duties that we expected. It would be beneficial if paragraph 14(1) of Schedule 1 included an additional requirement that the chairman of the committee of the OBR should each year certify the sufficiency of its resources and the adequacy of its independence from the Treasury. That would give considerable comfort. On the issue of its forecasting performance, I find the OBR’s role in that somewhat questionable. Forecasting is extremely difficult—as suggested by the noble Baroness, Lady Noakes, the Bank of England’s record in forecasting has not been particularly good—and I am not sure that we need another set of forecasts. Why not simply use consensus forecasts, which the Treasury frequently uses when it suits it and which the Bank of England also uses? The only basis on which we need another forecaster to add to the 40 or so credible forecasters—if such a phrase is not a contradiction in terms—is that the Minister can assure us that the OBR’s forecasts will be better than those of any other forecaster. I see even a degree of naivety in the drafting of the Bill, which requires that the committee of the OBR publish a commentary each year on its own forecasts, which implies that past mistakes can provide lessons from which it could learn. However, the reason why the OBR’s forecasts might be wrong in one year might give very little guidance as to why a forecast might be wrong in a future year. I endorse the view that the report on the OBR’s forecasts should be produced by a peer review group rather than by the OBR. Surely that is a sequitur to the whole thrust of creating an independent Budget Responsibility Committee. Finally under the heading of professionalism, I want to mention the word ““audit””, which appears a great deal in the subsequent parts of the Bill but not at all in the first 10 clauses. Nevertheless, the Chancellor of the Exchequer told the other place last week that the forecasts he made in the comprehensive spending review had been audited by the committee of the OBR. Can the Minister explain whether auditing is a proper function of the committee and how that function could possibly have been carried out in such a short period of time by such a small unit? Does that not place at risk the integrity of the language around audit? If audit is to be a function of the OBR, that should be properly specified in the Bill, including the methodology to be used. Finally, I have two brief points relating to the UK Debt Management Office in relation to Clause 1(1) and Clause 1(2)(a). Can the Minister tell us whether those provisions imply in some way a change in the future operation and accountability of that quite excellent office?