Clause 4

Budget Responsibility and National Audit Bill [Lords] – in a Public Bill Committee at 12:30 pm on 1 March 2011.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 12:30, 1 March 2011

I beg to move amendment 12, in clause 4, page 2, line 20, at end insert

Photo of William McCrea William McCrea Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Home Affairs), Shadow DUP Leader of the House of Commons

With this it will be convenient to discuss the following:

Amendment 13, in clause 4, page 2, line 20, at end insert

Amendment 8, in clause 4, page 2, line 20, at end insert—

Amendment 9, in clause 4, page 2, line 27, leave out ‘one occasion’ and insert ‘two occasions’.

Amendment 10, in clause 4, page 2, line 30, at end insert

Amendment 11, in clause 4, page 2, line 37, at end add—

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

These are differing amendments, but they all relate to the duties of the Office for Budget Responsibility. What the Government envisage as those duties are set out in clause 4, which is clear. On reflection, however, it seemed to the Opposition that the Government are taking a desiccated and a slightly accountant’s-eye view of what public finance sustainability ought to include. I do not wish to disparage the accountancy profession in any way, shape or form, but there is more to life than simply measuring numbers. We ought to be in the business of improving society and focusing on the outcomes of public finance, and not fetishistically obsessing about deficits at the cost of all other public services, the economy, jobs, growth and so forth.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Is the hon. Gentleman saying, as a member of the Opposition Treasury team, that the Treasury should not worry about numbers when tackling the deficit?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

No The Minister heard the word “deficit,” but she forgot that the point I was making was about her fetishism about the deficit. There is a sense of obsession about one aspect—an important aspect—of our public finances. As we know, the Minister and her Treasury colleagues are completely blinkered and blind to the impact on the rest of the economy of some of her policy decisions when it comes to her painful and swift approach to closing the deficit.

One policy area that we should consider, and which we felt ought to be within the remit of the OBR, is whether Treasury policies have a positive or an adverse impact on levels of child poverty. After all, what could be more important than ensuring that the children of future generations have a decent education, decent living standards and more opportunities open to them than was the case in preceding generations? No doubt, the Minister will say that that is just one area of public policy, and it is not necessary to put it in the Bill.

If we have an Office for Budget Responsibility, we are essentially testing whether Budgets are responsible. The only way of knowing that is by looking at their impact on society as a whole. Therefore, it is entirely relevant—in fact, necessary—to flesh out the duties that fall to the OBR by having it look at the rather regressive steps that the Treasury sometimes takes, as it unfortunately has in Budgets under this Conservative-led Administration.

Child poverty is obviously significant and, unfortunately, persistent in many parts of the country. The Child Poverty Action Group reported last week that an estimated 12,000 children in my constituency in Nottingham—about 23% of all children in the constituency—are living under its definition of severe poverty. That is unacceptable and more steps need to be taken to eradicate it.

It is good that we have the Child Poverty Act 2010, but there are increasing signs that the Treasury is affecting what happens, front and centre in public policy terms, in relation to child poverty. The Government are responsible for changes to tax credits, the appalling abolition of the health in pregnancy grant, housing benefit changes, the wider ramifications of pay freezes across the economy,  the increase in value added tax to 20%, child benefit cuts, scrapping education maintenance allowance, and welfare changes. All those issues have an adverse impact on child poverty. If we are testing the responsibility of the Budget, the Office for Budget Responsibility ought to be able, within its legal remit, to make a judgment about the Treasury’s measures and whether they are, in the true meaning of the word, responsible.

That is not to say that there are no wider economic ramifications that impact on child poverty, such as the rates of employment and of growth. The Government’s obsession with deficit reduction at the cost of everything else leaves all aspects of economic policy almost untouched. I hope that this is not the case, but growth looks as though it is going into reverse; there was a 0.6% reduction in growth in quarter 4 of 2010. Rather than a clinically narrow view of what responsibility ought to be, our amendment suggests that it should be judged not in isolation, but on the wider impact on society.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend will be aware that the 2010 Act imposed a responsibility on the Government of the day to publish a child poverty strategy and set up a child poverty commission. The new Government have been in office for almost a year, but we have still not had announcements on that front. A number of parliamentary questions have pushed the Government to say when they will make a move and take meeting the child poverty targets seriously. Given the Government’s inaction, it is even more important that an independent body holds them to account on the targets.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. My hon. Friend is correct; she has a strong record on speaking out on matters of child poverty. She is in many ways more knowledgeable than me on some of the details, particularly on the legislation passed during the previous Parliament. If we are to have a body called the Office for Budget Responsibility, the ordinary man or woman on the street may well expect it to test whether policy decisions will be reckless or prudent, and whether they will have a positive or negative impact on their lives, work, society, families and children. We think that the amendment is necessary for that purpose, and to put some colour into what could otherwise be a dry and narrow definition of the OBR’s duties.

The Joseph Rowntree Foundation has published a number of interesting documents, one of which looks at the estimated costs of child poverty to the economy and to the Treasury. One of the Chancellor’s difficulties in grappling with the issue is that he sees the business of tackling child poverty as merely a cost and a line item that will crop up in a future Budget. The work of the JRF shows very much that child poverty is actually a drain on the Exchequer in terms of the income that might otherwise have come to the Treasury. The foundation suggests that £17 billion is lost to the Exchequer in public spending demand and lost revenues because of the economic multipliers; low-income families obviously have higher marginal consumption rates and the income transfers associated with those strong economic multiplier effects are evident, but sometimes ignored under public policy.

For example, we know that Ministers’ rather depressing defence of the increase in VAT was that somehow it was not a regressive step. That they tried to paint it as a  progressive step was evidence that they do not really grasp and understand the impact that their policies might have on the responsible conduct of social policy. It would be useful to have an OBR that took a stance on that issue and was able to look at how the economic impact and costs of child poverty, such as the psychological and emotional costs, the educational costs, the employment costs, the costs in crime and negative behaviour and the costs to family and community well-being, apply across the board. It would be useful if the OBR had that capability.

The amendment is grouped with several others, and I draw to the Committee’s attention amendment 13 to supplement the points made about the narrow nature of the duties of the OBR as they are currently defined. It would allow the Office for Budget Responsibility to examine and report on the impartiality of the local government finance settlement across England. Many members of the public are aware that councils throughout the country are currently setting their budgets. When they hear that there is an Office for Budget Responsibility, they might not necessarily see it purely as a national policy body, but might think that their local budget situations in respect of public finance could also be subject to its work. It would seem rather odd to exclude the OBR from testing whether there was budgetary responsibility at sub-national level, and merely to test it at the macro-economic or national level.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

In relation to sustainable public finances, there is great anxiety in my constituency about the damage to our public finances and the current approach to local authority spending. Constituents constantly raise with me the false economy of such a high level of cuts, with cuts passed on to the Jobcentre as people are put on the dole. People frequently raise that connection and the influence that local authorities have on responsible public finances. Is my hon. Friend aware of such concerns?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Absolutely. There are good, sound reasons in and of themselves for seeking the right for the Office for Budget Responsibility to test the impartiality of local government grant settlements, precisely because many of the decisions made by the Government on local budgets seem highly arbitrary, very regressive and very harmful for the economy and society more widely.

It is not just Labour Members who advocate a level of audit and support for testing the impartiality of the grant settlement. No doubt the Minister will recall that in February 2009, her party published a rather interesting policy Green Paper, “Control Shift: Returning Power to Local Communities.” It is relevant because early in that document, the current Prime Minister and other Ministers made a number of promises, one of which was about the transparent local government financial system that they wanted to see.

The document states:

“Because the details of the current local government finance system are determined behind closed doors in Whitehall, it is hard for councils to be able to estimate with any degree of confidence how much they will be awarded. The system can be adjusted in many subtle ways that shift relative resources between different categories of councils. This element of qualitative input leads to suspicions that the outcomes of the allocation process are subject to covert party-political interference…We need a more transparent system for allocating local government funding. Therefore, a Conservative government will give the independent Audit Commission a new duty to report to Parliament on the draft  Local Government Finance Settlement each year. The Audit Commission will be given a specific duty to report on whether the basis for allocation is transparent and in accordance with objective criteria set out by ministers.”

The policy document continues in that vein, so the idea was not simply dreamt up by the Opposition when tabling our amendment. We wanted to test for that impartiality, and whether Ministers stand by their commitment that the local government financial settlement should have independent audit; or they do not, and have backtracked, adding to the long list of U-turns happily made by the Government in their shambolic progress. It would be good if the Minister could address that point.

The Government have now abolished the Audit Commission but, in its lieu, the OBR would be the natural, best body to test for the independence of the local government financial settlement. For a number of pressing reasons, we need to have such a test by the OBR.

The presentation of the recent local government grant settlement was highly partial and suspect in a number of ways. A new method for articulating the grant to local authorities was devised by the current Secretary of State for Communities and Local Government. Never before in the history of local government finance has the term “spending power” been used, but that was the measure when talking about the amount of money councils received, because the Secretary of State wanted to say that no council would be getting a cut of more than 8.5%. In fact, he was rolling within the grant settlement the amount of money that councils themselves would be raising through council tax, which of course has been completely separate.

Ministers’ spin has given rise to the sense of a partial approach to the presentation of the local government grant settlement. We know that a massive mismatch exists between the deprivation in many authorities and the resources they are receiving. Nottingham, where my constituency is, is ranked the 13th most deprived authority on the index of multiple deprivation, but it will receive the 21st largest fall in spending power for upper tier authorities. The fire authority in Nottinghamshire is getting the second worst settlement in the country, whereas it ranked ninth out of 45 fire and rescue services by total numbers of fires.

The local government finance settlement is arbitrary and has a sense of disproportionality. The OBR ought to have a responsibility to check and test that settlement, because local budgets are just as important in many ways and to many people as national Budgets. The Government’s approach of removing ring-fencing and ending a number of grants meant that the quantum of reduction in other, un-ring-fenced grant arrangements caused problems for many authorities, in particular with the supporting people budget, which is used for the most needy in society—tackling homelessness and so forth. Despite many exchanges of correspondence with the Secretary of State councils throughout the country have simply been unable to get clarity on the truth about the settlement. Many Members know from their own local authorities that there is a sense of obfuscation,  and that the clouds that have descended over the local government financial settlement have brought into disrepute the process of allocating grant fairly from central Government to local authorities. One can add into that the double-counting effects that different Departments are pursuing; for example, there is the health and social care budget, which appears in PCT budgets at the same time as it appears in local authority budgets. This is clearly a settlement and a grant-giving process that is prone to partisan interference.

Photo of Duncan Hames Duncan Hames Liberal Democrat, Chippenham 12:45, 1 March 2011

Does not the hon. Gentleman accept that his assertion that the process has been brought into disrepute relies on the fundamental premise that it was somehow held in high regard before?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am merely trying to hold the words of the hon. Gentleman’s new-found friends to account, to see whether the Minister agrees with previous statements. I do not know about the Liberal Democrats, because perhaps they take a different view, but the Conservative party has stated:

“We need a more transparent system for allocating local government funding.”

It said that there should be independent audit, with a

“new duty to report to Parliament on the draft Local Government Finance Settlement each year”.

The hon. Member for Chippenham may disagree that that is necessary, but it is essentially the amendment that we are looking to pursue today. If the Minister has forgotten that that was a recent commitment made by her colleagues, I will happily withdraw the amendment, and, if she then wants to come back with a slightly finessed version, that is fine. To simply ditch it, however, and say that “We’re now in control, so we will pull the strings and play with the levers to our political hearts’ content,” would be wrong, especially given the Conservatives’ apparent discontent with the arrangements under previous Governments.

I would not go as far as to say that, when it comes to the local government grant settlement, everything has always been perfect in all preceding Administrations. There is a reasonable case for greater transparency, which is precisely why we have tabled the amendment. I hope that the proposal will not be rebutted, but I know that Ministers often have the word “RESIST” written in big, black letters on their brief. On the brief that is before the Minister today, however, that would not be good, so I hope that we will see some progress from her on that particular point.

Amendment 8 seeks to define the term “sustainability” more appropriately and to allow the OBR greater latitude there, so that it might include public sector net borrowing, as well as debt, growth, employment and wider risks to the UK finances. As with my comments on amendment 12, the amendment recognises that there are positive elements of the draft charter for fiscal responsibility. Confidence in the economy is one such objective. Intergenerational fairness should be looked at, as should the effectiveness of monetary policy and so on. There is, however, too little focus in the draft charter on growth and jobs.

As the Minister knows, one of the primary anxieties that we have about the Government’s policies is that there is no strategy for growth. Even though unemployment is rising, they seem to care very little about that and they are taking few steps to stem rising unemployment. Similarly, the economy appears to be shrinking and not  enough is being done to stop that. For the OBR, defining “sustainability” in that wider macro-economic sense would give it an ability to conduct its analysis and assessments as they apply to other important areas of public policy. Clearly, that would be a sensible step, and I hope that the Minister will view the amendment positively.

Amendment 9 proposes that the OBR publish its analysis and assessments twice each year rather than simply once. If the OBR is so significant an organisation, a twice-yearly publication of its analyses does not seem particularly unreasonable to me. Historically, as we have noted in previous debates, the Treasury typically has autumn statements, pre-Budget reports and so forth that can take place on a number of occasions within a financial year. We should, therefore, have an analytical cycle that matches the Treasury cycle. To have an aligned arrangement where the OBR has an obligation to make its analysis only once a year seems slightly odd.

We know, of course, that Government policies can change quite rapidly, as can the economy. A week is a long time in politics, as it is for the economy. To have only one analysis within a calendar year seems out of kilter with economic realities. Obviously, growth can take a turn for the worse, and therefore an OBR set of assessments and analysis on a six-monthly basis would seem more appropriate to us.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Before my hon. Friend moves on to the next amendment, I point out that the other important thing addressed by amendment 9 is the fact that, in clause 4, the OBR is required twice a year to prepare fiscal and economic forecasts, and an assessment of the extent to which the fiscal mandate has been achieved or is likely to be achieved. But only once a year is it obliged to prepare an assessment of the accuracy of the fiscal and economic forecast previously prepared by it. It seems slightly strange—if it is producing forecasts twice a year, why does it have to look at the accuracy of those forecasts only once a year?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed, and I think this particular clause was debated in the other place when the Bill was considered there. This disjoint seems to indicate a lacuna in the drafting of the legislation. It would be useful if the Minister were able to address it.

Amendment 10 is short and simple. It seeks to ensure that the sustainability of public finances is measured over a five-year period. That seems to be the suggestion made in the charter for budget responsibility, but we felt that there was logic in extending that provision in the Bill as well. Amendment 11 seeks to ensure that the OBR positively promotes a

“public debate on fiscal sustainability”.

The Government have a history, sad to say, of showing perhaps a little too much partisan bias when it comes to definitions of sustainability. In their eyes, sustainability is a pretty cold and calculated thing. I have mentioned that they are obsessive about the deficit to the point of ignoring issues that are quite critical in the broader economy, and their elevation of deficit closure issues, which many suspect is a device to shrink vital public investment. Many in the Conservative party may have come into politics with the intention of doing that all along. It is often felt that there is insufficient evidential basis for many of the claims that they make about the sustainability of public finances. The Chancellor of the Exchequer famously claimed that we were on the brink of bankruptcy, even though our triple A rating by the credit rating agencies never changed.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Well, the Minister asserts an opinion. The problem with the Government is that they interpret opinion, mood and general assertions as though they are absolute hard and fast facts, as though we should drive our public finances arbitrarily on the basis of such suppositions and opinions, separate from and outwith the actual economic evidence that we see before us. Sustainability is an important issue. It needs to be debated more widely, and I hope that the Minister will agree.

The Chairman adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Four o’clock.