Clause 6

Budget Responsibility and National Audit Bill [Lords] – in a Public Bill Committee at 5:30 pm on 1 March 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 5:30, 1 March 2011

I beg to move amendment 16, in clause 6, page 3, line 13, at end insert—

Clause 6 deals with the issuing of guidance on how the main duty of the OBR will be performed. The main duty is set out in clause 4, while the detail of how that duty is to be performed is set out in clause 5. Clause 6 is about the guidance that then informs how that duty is carried out. Our concern is that it sets out guidance that may be included in the charter. I do not want to revisit all the territory that we have already discussed about the fact that the charter is not before us in a finalised form today; but obviously, the fact that some guidance is contained in the charter, rather than in the Bill, gives us less ability to scrutinise, amend and challenge it.

We are concerned that the issuance of guidance contained in the charter would be used as a back-door way of seeking to control or direct what the Office for Budget Responsibility does. On the one hand, the Minister  stressed the impartiality of the OBR and that it will be independent, deciding how it works, what it does and how it performs its duties. That duty is set down in the legislation, and there are details in clause 5 about how it will be performed. The detail of that guidance, however, starts to sound prescriptive and as though the Treasury or the Government are keen to dot the i’s and cross the t’s in terms of what the OBR does on a day-to-day basis.

We tabled the amendment to provide a safeguard. It states that the guidance that may be issued under the charter for budget responsibility

“shall not prevent the Office from preparing any forecasts, assessment or analysis at a time of its choosing.”.

That is motivated by concern that the guidance, as suggested in subsection (1), is

“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 required to be prepared under subsection (3) or (4) of that section.”.

The Minister said that the OBR is perfectly capable of making its own decisions and deciding its own work load, and that it ought to be left to make those decisions. She made that point very strongly when she said that it should not be our job to tell the office that it ought to be looking at local government finance, child poverty or whatever.

On the one hand, the Minister has said, “Leave the OBR alone; it knows what it is doing.” On the other hand, the Government now seem to want to tell the office at what time it should prepare forecasts, assessments or analysis. Surely, if the experts are in the office doing the work on a day-to-day basis, and have already been told under clause 4 that they should prepare forecasts twice a year and make an assessment of the accuracy of the forecast once a year, there is already a degree of prescription from the Government as to how often they should do things. It seems to be going slightly too far in subsection (1) to state that further guidance should be issued about the timing of

“any forecast, assessment or analysis”.

That is why we feel that there should be a caveat, or a safeguard provision, which says that if we accept that the Government are telling the office at what time it should prepare forecasts, that should not preclude the OBR exercising a degree of independence if it wants to do anything else at other times of the year. That is just a caveat to the provision. I would not have thought that the Government would have a problem including that as a safeguard, but I look forward to hearing what the Minister has to say.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 5:45, 1 March 2011

I hope that I can clarify the situation for the hon. Lady. Clearly, we want to ensure that the guidance helps the OBR in clarifying its duty and how it will work in practice. It is also worth pointing out that when the Chancellor comes to produce the Budget, he will rely on the OBR to produce the context for his fiscal policy decisions. The OBR’s forecasts will, therefore, be a very important part of the Budget, so it is important that that aspect of what it does is produced in a co-ordinated manner. Otherwise, we could end up with a Chancellor having to take decisions without independent analysis from the OBR. The public and Parliament could end up with no forecast alongside the Budget that the Chancellor presented to Parliament. We want to ensure that the  OBR fulfils its core executive function, which is to produce the official forecast, and to do so when Parliament and the public need to see it. Part of that is the OBR’s analysis of the likelihood that the Government will meet their fiscal mandate.

There is a need for the OBR to co-ordinate with the Treasury regarding the timing of that analysis, which means that the OBR forecasts are the most relevant for the Chancellor’s policy decisions. However, that does not undermine the OBR’s ability to act independently of Ministers. How it approaches that forecast—its judgment and methodology—remains at the complete discretion of the OBR, and clause 6 makes that clear. Clause 6 is also very clear that the charter cannot include guidance on how the OBR should produce its forecasts. Apart from that, subject to fulfilling its own executive functions, the OBR can provide additional analysis to its own publication timetable, as stated in paragraph 4.21 on page 14 of the charter for budget responsibility.

Other than the example that I have just set out, the OBR can publish at a time of its choosing its assessment of the accuracy of its fiscal and economic forecasts, which it will do at least once a year. The analysis that it will make of the sustainability of public forecasts will also be done at least once a year along with any other analysis consistent with its duty to examine and report on the sustainability of the public finances.

The charter for budget responsibility sets out that relationship and the timing of the particular official forecasts that the Chancellor and Parliament need. It also sets out that the Chancellor will provide “reasonable advance notice” ahead of any forecast publication date, so there is some co-ordination; it is set out in the charter how that will work.

I hope those comments have provided some reassurance about why that piece of the guidance and the charter works in the way they do.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am slightly confused as to why there is a need for the provision in subsection (1). It would seem a matter of common sense that if the Chancellor has given the OBR reasonable notice of things that are likely to appear on the political calendar, which is a sensible way to conduct the relationship between the organisations, the OBR—if it takes its role seriously, as I am sure it will—will get to work and start doing the analysis and assessments that are required. I am not sure what would be gained by additional guidance about the timing in the charter. I am not sure what sort of wording would appear in the charter that would be useful, especially as if the charter is revised, it would have to be laid before Parliament. In such a case, there would obviously be a significant time delay before anything in the guidance would become binding.

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

The hon. Lady advances one argument that can be made. If we had not put in a safeguard to ensure that the OBR did not have to produce official forecasts to coincide with core fiscal updates to Parliament by the Chancellor and to feed into that policy-making process with its independent assessment of the impact of policies on the financial situation and the long-term sustainability of public finances, I suspect that the Opposition would quite rightly have wanted to table an amendment to say that we should have such a safeguard.  When Sir Alan Budd, who was the interim chair of the OBR, was asked to provide advice on how the OBR should work, he said:

“As a minimum requirement, the permanent OBR will need to produce one Budget forecast each year to coincide with, and include all of, the Budget measures.”

The hon. Lady is right. Arguably, we could have left that provision out, but it would have been wrong. The role of the OBR is so important that we must take on board comments from people such as Sir Alan Budd. Our view was that, on that particular aspect, we should be prescriptive, not just for the Treasury and the Chancellor to have the OBR feed into the process and then report on it, but for the transparency that we need for the OBR and its role in aiding robust scrutiny of the public finances. I hope that has provided the hon. Lady with some reassurance.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I have nothing further to add. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Will the Minister elaborate on the form that the guidance on how the Office for Budget Responsibility performs its duty, particularly in relation to clause 5, will take? That clause seems to be dealing with a similar issue—how the main duty is to be performed—and clause 6 deals with guidance as to how the main duties are to be performed. Presumably, the charter and the guidance that it contains will build on the contents of clause 5.

We are particularly concerned about the role of the Office for Budget Responsibility. The Minister touched on that concern when she quoted the Treasury Committee’s report, which stated that the Office for Budget Responsibility should not be a policy-making body. It is important that it is not, but we need clarity about where the dividing line is. In its duty under clause 4(3) it will prepare “fiscal and economic forecasts” and assess

“the extent to which the fiscal mandate has been, or is likely to be, achieved.”

In particular, the wording “is likely to be achieved” strays into the territory of expressing an opinion. That opinion might be based on data and facts rather than political ideology, but it would certainly lead the office into that sort of territory. If it produces critiques of what the Government have done, a question arises as to whether it will stray into political territory.

Will the Minister tell us whether the guidance will deal with the question of what would be considered as having regard to Government policies, as set out in clause 5, and as not considering

“what the effect of any alternative policies would be.”?

Imagine that the Government proposed a rise in income tax of 1p in the pound. The Office for Budget Responsibility would play a role in considering the impact that that would have on the sustainability of the public finances. In considering that, would the office be able to pass judgment on or assess the impact of a 2p rise in income tax, or of the impact of no rise? If one is looking at the impact of a rise in income tax in the context of the sustainability of the public finances, it would seem  eminently sensible to consider the consequences of different levels of income tax rise. If the rise in income tax were to be offset by cutting VAT, various scenarios and combinations of rises in direct taxation and cuts in indirect taxation might be considered, or one might look at the alternative, namely whether there should be rises in indirect taxation and cuts in direct taxation.

Given the vagueness of clause 5 on that issue, perhaps the guidance that will be included in the charter under clause 6 should give more guidance to the Office for Budget Responsibility on when it would be deemed to be straying out of its territory and when it would be deemed to be fulfilling its duty. Perhaps the Minister can give us some reassurance on that point.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife

I want to focus particularly on subsection (4), on which we seek guidance as to the Minister’s thinking. I will provide some specific examples of concern that I hope she can help to deal with. We are concerned about the designation of 28 days, which on the face of it appears to be a perfectly reasonable period of time; I do not object to the principle of four weeks’ notice. However, the Minister will be aware that a series of events over the next 12 months will eat up quite a lot of the House’s sitting time, and that Ministers may not always be available. I am not sure whether the Minister is one of the 200 MPs who has had an invitation to the royal wedding. I certainly have not, and I am not sure whether any other Opposition Members have. The hon. Member for Bristol West shakes his head.

I was told yesterday that 200 MPs have received invitations. I do not know whether any of the royal household’s Chamberlains or Comptrollers and Vice-Chamberlains have been invited in one capacity or another, but obviously Ministers may be distracted in the build-up to the wedding. The House will not be sitting. I understand that some hon. Members have their own wedding plans. They are to be congratulated on that, but I do not know whether they will need similar preparations.

There will be a series of events. The Easter recess lasts for three or four weeks, and I am sure that Members will be out and about in Bristol, Chippenham and elsewhere, campaigning hard for their coalition colleagues. If the idea of having 28 days is to allow Ministers and Members pre-consultation with interested bodies, it is reasonable to suggest that the Government may struggle to have genuine consultation.

Then there is the summer recess. I do not know what plans the Minister has for a holiday, and whether she will be joining the Chancellor in Klosters or wherever they go. I am not sure what are the best ski resorts in the height of summer. Perhaps the Minister will clarify the Chancellor’s thinking on that. Ministers and Members may not be around to take meetings, and the Christmas and new year recess will eat up another two weeks or more.

I am genuinely concerned about the 28-day period. We have not tabled a specific amendment, because we hoped that the Minister would clarify the matter. However, she will appreciate that if we do not feel that we have received a robust response we reserve the right to table an amendment, perhaps on Report. I hope that the Minister will give us clarity on that question.

I am a new Member and seek guidance from the Minister as to the procedure for laying the charter before Parliament under clause 1(6). Will she clarify what the period for formal debate and consultation will be? I cannot speculate on what the Chair of the Treasury Committee may wish to do, but if he felt that it would be useful to take evidence, would that be built in? What guarantees are there on the period of formal statutory consultation? Does the Minister envisage it being done through a statutory instrument, or in an order to be debated by the House?

I would be grateful if the Minister would clarify both those issues: the 28 days, and the process for formal parliamentary scrutiny and debate of changes to the charter.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 6:00, 1 March 2011

The charter for budget responsibility may include guidance to the Office for Budget Responsibility on how it should perform its duty, and the OBR is required to act consistently with it. However, the guidance must relate only to the functions conferred by the Bill. I must make it clear that the guidance cannot add to or distort the OBR’s remit as set out under the Bill, which is a safeguard.

As we heard earlier this afternoon, the charter can include guidance on the timing of the forecast assessment and analysis required under subsections (3) and (4) of clause 4. The Chancellor will commission the OBR to produce its fiscal and economic forecasts on a particular date, to ensure that the forecasts are produced in line with the Government’s timetable for the Budget and autumn forecast; that requires considerable co-ordination across Departments. Other work will be produced by the OBR, at times determined solely by the OBR, with release dates set out in advance to ensure transparency.

Equally, the charter must not provide guidance on the methods that the OBR may use in producing its forecasts, assessments and analysis. That provision is vital, because it ensures that the OBR has complete discretion over the methods that it uses, and that the Budget Responsibility Committee has complete freedom to determine how best to produce its independent forecasts, assessments and analysis.

Finally, if the Treasury wished to modify the guidance to the OBR in the charter, a draft of the modified guidance would need to be published at least 28 days before the modified charter is laid before the House for consideration. That addresses one of the questions raised by the hon. Member for Dunfermline and West Fife. That 28-day timeline is consistent with the 28-day procedure for statutory instruments, and, as I just stressed, it is a minimum amount of time. There would be the potential to lay an instrument earlier if, as he pointed out, there were mitigating circumstances. Taking all those things together in the clause means that there should always be time for appropriate parliamentary scrutiny of the charter.

The hon. Member for Bristol East had concerns about how the OBR will undertake its assessment of whether the Government are meeting their fiscal mandate, and how it will judge sustainability. It is for the OBR to undertake such analysis, and it will assess the likelihood of the Government’s meeting the fiscal mandate that they set out for themselves in the charter. Alongside that, part of the Bill and the guidance in the charter sets out that the OBR has to be very transparent about how  it approached that analysis, the risks that it took into account, and its assumptions and methodology. Its assessment will set out whether the Government are on track to meet their fiscal mandate—the fiscal objectives that they set themselves—and there will be transparency so that people can look at how the assessment was carried out and take a decision on whether it could be improved, and its shortcomings. It is clearly more challenging for any forecasting organisation to do its job in times of uncertainty than in times of incremental economic change.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife

I am conscious that the Minister is trying to wind up the debate. Could she clarify the formal parliamentary process once the modified charter is laid before Parliament? Would it be a statutory instrument, or some other mechanism?

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

We expect it to be handled like a statutory instrument in terms of timing and scrutiny, but, ultimately, there will be a parliamentary procedure that the usual channels will go through to decide precisely how it will be handled.

Going back to my comments on whether the OBR should look at different policies—this was raised by the hon. Member for Bristol East—we do not think that it should be in the business of looking at alternative policy scenarios. It should simply provide forecasts that are based on the policies that the Government are pursuing and have announced in the Budget. If it starts to stray into analysis of alternative policy scenarios, it inevitably risks undermining its independence, impartiality and objectivity.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I appreciate entirely what the Minister is saying, which is why I raised the issue. It would be wrong if the OBR were to see its job as passing a verdict on anything that might be kicking around in the political sphere as a possible move that the Government could take. However, there is a difference between that and using comparisons with other possible scenarios to pass judgment on what the Government are actually doing.

That is why I used the example of the Government looking at a 1p rise in income tax; it would be difficult to assess the impact of that on the sustainability of public finances without the charts that are normally produced in such circumstances and which have always been produced by Robert Chote in his former role at the IFS, looking at how much would be raised by a 2p rise and how much by a 3p rise. I want some assurance that the OBR’s remit could enable it to cast its net slightly broader than just looking at exactly what the Government have done and to make comparisons with other things that the Government might have considered when they made their decision.

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

To be clear, the Office for Budget Responsibility will not do that. It will not look at alternative policy scenarios, because its role is to provide an independent forecast of the economic and fiscal policy decisions of the Government, with the economic forecasts going out into time.

The hon. Lady gave the example of the OBR forecasting alternative scenarios for income tax. If it did that, it would inevitably lead to a debate about whether a  Government could go further and still have sustainable public finances in relation to income tax decisions. That would take the OBR into a sphere where it could be embroiled in a political debate about income tax policy, which is absolutely not what we want for the OBR. We want it to look at the policy decisions of the Government, to model them, to give its assessment on forecasting for the economy and public finances; and, alongside that, to say whether it believes the Government are likely to meet the fiscal mandate and objective they set themselves in the light of the policy decisions taken and the expected trajectory of the forecasts.

The hon. Lady suggests an alternative way for the OBR to work but, if we went down that route, it would undermine the most important aspect of the OBR, which is to have something that is independent and that achieves that through being impartial, objective and transparent.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife

The Minister is very generous in taking our genuine interventions. Let us go back to Treasury questions just before Christmas, when, as she will recall, no fewer than five Conservative MPs independently asked what assessment she and her colleagues had made of the graduate tax. Mr Speaker let those questions in because he said that obviously the Government must have considered the graduate tax and discounted it when they were deciding on the hike in tuition fees that the hon. Member for Chippenham tore up his pledge card and supported.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife

I think that the hon. Gentleman abstained. He kind of stuck to his principles and abstained. Surely if the Government have made an assessment of something and discounted it, it is reasonable that the OBR would take a look at that policy area? I understand what the Minister said about going off at a tangent and doing some blue-sky or original thinking, but if it is a policy, whether a graduate tax or an income tax rise, that the Government have admitted they have considered but discounted, does she not think the OBR should be able to look at that?

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

The hon. Gentleman makes an important point. The OBR plays a role of robustly and independently looking at the impact of policy decisions as they might affect the public finances and their sustainability and the long-term forecasting of economic indicators.

Of course, the OBR like any other public body will be subject to the Freedom of Information Act. Although clearly each case is different, the situation that he raises would be likely to fall under an exemption of policy in development. In other words, it would simply be impossible to publish a blow-by-blow analysis of how the Budget was being pulled together. It would not be in anybody’s interests for all that to be put into the public domain. However, the OBR is, of course, subject to the Freedom of Information Act, like any other public body.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife 6:15, 1 March 2011

I think that perhaps the Minister has misunderstood me. If that is the case, I apologise deeply. The example that I was trying to give is of the Government having considered a taxation policy and discounted it. Does she not think that if the Government have discounted a policy, it is right for the OBR, when it measures the validity of the policy that the Government have adopted, to compare the two like for like? Is that clear?

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

We come back to my original comments. First, apart from performing core executive functions of fiscal and economic forecasting, it is up to the OBR to decide what other forecasting to do and how and when to publish it. My response is much the same as it was to the hon. Member for Bristol East: I think that it would be against the spirit of what we are trying to achieve in setting up the OBR to put alternative policy scenarios into a post-Budget analysis, because it would inevitably end in the OBR being pulled into a debate about what the right policy was. We do not think that that is the OBR’s role. It is right for Parliament to debate different policies, as we did on tuition fees, but that is the role for us as Members of Parliament elected by our constituents.

It is important that the OBR not only is independent but is seen to be independent. We need only witness how the Opposition reacted to what they felt was the inappropriate timing of a publication. I reassure Members that there was no Government involvement, but it shows how important and sensitive the issue is. That is one reason for the set-up of the clauses in the Bill and the charter supporting it, and it is why it is so important not just for the OBR to be independent but for it to be seen to be independent. We can already see that it will always be a concern, so we must put it beyond doubt. That is what we are trying to do by saying that we do not think that the OBR should analyse alternative policy scenarios. With that, I support the clause.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.