Schedule 1

Budget Responsibility and National Audit Bill [Lords] – in a Public Bill Committee at on 3 March 2011.

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Amendment again proposed (this day): 28, page 13, line 21 [Schedule 1], at end insert—

Question again proposed, That the amendment be made.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

I remind the Committee that with this we are discussing amendment 29, page 13, line 28 [Schedule 1], at end insert—

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

Good afternoon, Mr Gale. I believe I am right in saying that this is the first time I have had the privilege of serving under your chairmanship. I very much look forward to doing so this afternoon and perhaps next week.

I rise to speak in support of amendment 28, tabled by my hon. Friend the Member for Bristol East. I confess that I have an ulterior motive in supporting the amendment, and, based on some private conversations that I have had with Government Members, I suspect that they, too, might be tempted to see the reason of it.

The amendment would not just ensure that the Office for Budget Responsibility was based physically outside the Treasury but would allow it to be based elsewhere in the United Kingdom. I am sure that many hon. Members on both sides of the room will make articulate cases in their own right for the benefits of that. The hon. Member for Scarborough and Whitby would be a true champion of the merits of Scarborough, the hon. Member for Bury North would argue the case for basing the OBR in the north-west, and the hon. Member for Witham would make an equally powerful case for her constituency. Of course, it goes without saying that my hon. Friends the Members for Nottingham East and for Bristol East and other hon. Friends would make powerful cases, as would the hon. Member for Chippenham.

One reason a location has not been specified is that when I did a head count around the room this morning, I felt that Yorkshire would be in a powerful position, given the power of the Whips in this matter. Both of them would gang up on us humble Members and ensure  that Yorkshire won the case. [Interruption.] I apologise—my hon. Friend the Member for Hyndburn is a Lancashire MP.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon

Could I ask the hon. Gentleman to point out that, as a result of this Government’s investment in superfast broadband, rural Yorkshire would be a good place for his proposal, if the Government were to agree with it?

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

The hon. Gentleman is absolutely right about the merits of locating in a rural part of the UK. As a Member for a semi-rural constituency, I would echo that sentiment. However, I do not want to get tempted into a debate on the merits of individual locations. Suffice it to say that I think the amendment would produce an excellent clause. It is highly reasonable, and I am sure that the Minister, who has an excellent reputation as someone who keeps a tight hold on the Treasury’s purse strings, will see the strong case for it. We would not have to pay the exorbitant central London rates and office rents. A location in Bury, Witham, Livingston, Edinburgh or another place would save the Treasury a great deal of money. I very much hope that the Minister will be able to find some merit in the amendment.

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

It is a pleasure to serve under your chairmanship again, Mr Gale.

I understand the rationale behind amendment 28, and, in many respects, I agree with it. We briefly touched on the OBR’s location yesterday, when I recounted the potential for a Treasury Minister to bump into Robert Chote, for example, in the Treasury. I said that I was sure that would not happen once the OBR had moved. Actually, it has already moved—that demonstrates just how independent it is—and is not located in the Treasury. In October, Robert Chote announced his intention to move the OBR out of the Treasury, and it moved in December. It now co-locates with the Attorney-General’s Office.

Future decisions on the location of the OBR will be a matter for the independent OBR and its chair. I have no doubt that Committee members who wish the OBR to be located in their constituencies will be able to make a passionate case to its chair on behalf of their local community. However, because the OBR is independent, such requests would have to be made to the OBR itself. It is important that the OBR is seen to be independent, and its location is relevant to that. At the heart of what we are trying to do is ensuring that it has an independent working relationship. That is the ultimate test.

The Congressional Budget Office was mentioned earlier, and I wondered where it was located—in particular, was it in a separate location? It is located in the Ford House office building, one of four buildings for House of Representatives staff on Capitol Hill in Washington DC. The Ford House office building is the only building not connected underground to the other office buildings or to the Capitol, and it is the only office building that does not contain offices for Members of Congress. There, as with the OBR, we see the use of ensuring that the office is located in a different place. However, the interesting thing about it being the only office building  that is not connected underground is that it shows that being in a different building does not necessarily mean that you are not connected with other buildings. In relation to amendment 28, the OBR is already located separately.

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

Given that fact, and given that we are talking about less than 1 square mile of real estate, does it not therefore follow that the Minister can accept this reasonable amendment?

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

I would be undermining the independence of the OBR if I told it where to locate. The hon. Gentleman should make his case to the chair of the OBR rather than to me as a Treasury Minister.

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

We do not want Parliament to tell the OBR where to locate. We simply want to tell it where not to locate.

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

In a way, that is one and the same thing, so we do not need the amendment. In practice, it would not make any difference, because the OBR is no longer located in the Treasury.

I turn to the question of employees and secondees. Once the OBR is established by statute—that is the Bill’s intent—a number of forecasting experts will be formally transferred from the Treasury to the OBR. They will not be secondees; they will be direct employees of the OBR, and will report to the chair of the OBR. As we heard earlier, the chair will be independent. The process for appointing the chair is fully independent, and the appointment can be vetoed by the Treasury Committee. The OBR staff are absolutely independent.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister may be about to speak about this—I may be slightly premature—but she said that staff will be transferred from the Treasury. Who will decide which Treasury staff are to be transferred? Surely the director of the office should have the final say. Doing otherwise would suggest that the Treasury was trying to put its placemen or women in position.

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

I agree with the hon. Lady. I assure her that the OBR is responsible for all future staffing decisions—not only hiring but firing.

In light of what I have said, we do not need amendment 29. The provision is clear cut; people working in the OBR will be working for the OBR. They will report to the chair of the OBR, and he has decision-making powers over his staff. Hopefully, I have now answered the shadow Minister’s queries.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

It is, of course, a pleasure to serve under your chairmanship, Mr Gale. I accept the Minister’s point that the office has already moved out of the Treasury. That is obviously welcome although I see no harm in having the Bill make that a permanent state of affairs. Who knows what may happen in future? As for the staff being employed solely by the office, I am reassured that Robert Chote will have complete discretion in the people he takes on. The Minister said that the forecasts would be transferred over and that sounded as if it was an automatic process based on people’s job  descriptions. If people are currently doing the economic forecasting role in the Treasury, but Robert Chote does not think that they should join his team, is he entitled to say no?

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

To be absolutely clear, the chair of the OBR is responsible for all hiring and firing of staff. As the hon. Lady will understand, there is a limited pool of talent to do the forecasting that the OBR needs to do. So, of course, as it starts it is perhaps understandable that it will draw from the talent that was in the Treasury. In future I would expect it to be able to draw more staff from other areas into its overall staffing levels. But it is absolutely in charge of hiring and firing.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank the Minister for that reassuring response. There is one point that may still concern us. As she says, some people have already gone over from the Treasury to the office that is currently running. There is a potential conflict of interest if during the course of their career progression some of them return to the Treasury. Obviously within the civil service as a whole there will be far more career opportunities than there are in the OBR because it is a much smaller entity. We would not want to restrict people’s career development, but at the same time, if they spent a few years in the OBR and then returned to the Treasury, and if there was quite a lot of that cross-fertilisation going on, it would give cause for concern. That is something that needs to be kept under scrutiny once the office is put on a statutory footing and starts to bed down. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I beg to move amendment 30, page 14, line 13, at end insert—

The amendment is fairly self-explanatory. Again, it addresses the point that we have discussed already about how the functions of the OBR should be as transparent as possible so that it can be as accountable as possible to the public and to Parliament. Obviously the Monetary Policy Committee publishes minutes of its meetings, albeit with some delay. We think the minutes of the Budget Responsibility Committee and any of the sub-committees that are established under the Bill should also be published. I should be interested to know whether the Minister agrees. If she does, perhaps she will be prepared to accept the amendment to ensure that that will definitely be the process in future.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 1:15, 3 March 2011

Because the OBR is independent, it is ultimately a matter for the OBR whether it chooses to publish the information relating to its committees and its contacts with Ministers. Schedule 1 allows the BRC to determine its own procedures and the OBR to determine the procedures of its committees and sub-committees. As I said, that supports independence. Minutes are probably not the best way to communicate the OBR’s conclusions. The hon. Lady may have in mind the Bank of England and the publication of the Monetary Policy Committee’s minutes. Those minutes are the principal means by which it explains its monthly policy decisions.

The OBR is not a policy-making committee, so it is appropriate for the Budget Responsibility Committee to explain its forecast judgment in its reports. That is one reason why, in the charter and the Bill, we make it clear that those reports should set out the risks considered by the OBR, the assumptions that it makes and the various methodologies that it uses, so that there is complete transparency.

It is not for the Government to say that the OBR should have to publish its minutes. There would be a danger of slight overkill if it had to publish the minutes of every meeting. However, it is important that when the OBR has finished its work, it is put into the public domain and that it is transparent and comprehensive. The provisions in the Bill ensure those very things. It makes it clear that all OBR reports must be published. As I said, those reports must include key risks and assumptions. The OBR has the underlying duty to act transparently. I assure the hon. Lady that there is a transparency safeguard. As for the questions that people might have about how the OBR goes about its reporting, I hope that that will be covered by the report.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank the Minister for her response. In this and other sittings, she has stressed that the OBR is independent and should therefore decide for itself how to conduct its affairs and exercise its own judgment on whether to publish minutes. However, it is we in Parliament who are setting up the OBR. We are not just saying, “Here you are, get on with it.” The purpose of the Bill is to set out and prescribe in detail how the office should be run. This is our one opportunity to ensure that the office is given certain guidelines. I appreciate the Minister saying that the office will publish regular reports, outlining its reasons and giving the methodology on which it bases its forecasts. That is little different from publishing minutes of meetings.

Again, we come to the question of the relationship between the OBR and the Treasury. For example, it would be in the public interest to see minutes of any regular meetings the OBR had with Treasury officials. I do not suggest that a full transcript should be made of everything that it discusses, because some matters will obviously be confidential. It would also be a huge burden. I would be interested to know to what extent it would be covered by the Freedom of Information Act, but it is entirely reasonable to suggest that the OBR should publish minutes of those meetings.

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

The hon. Lady is right that freedom of information provisions will apply to the OBR. She spoke about the public interest, and the FOI mechanism is a good one for assessing what is in the public interest. The hon. Lady spoke about minutes, but those who make freedom of information requests will know that there may be other documents; the danger with the amendment is that it may not catch what she wants.

I draw to the hon. Lady’s attention the fact that clause 5 clearly states that

The Office must perform that duty”— how it delivers its reports—

“objectively, transparently and impartially.”

If we are going to give the OBR independence, we have to allow it to see for itself how best to fulfil its duty. It may decide that it wishes to publish minutes, but I believe that it is not for the Government or Parliament to tell it to do so.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank the Minister again. I have residual concerns, but I shall not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I beg to move amendment 31, in schedule 1, page 15, line 18, leave out ‘5’ and insert ‘3’.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

With this it will be convenient to discuss the following:

Amendment 32, in schedule 1, page 15, line 40, leave out ‘5’ and insert ‘3’.

Amendment 33, in schedule 1, page 15, line 41, leave out ‘5’ and insert ‘3’.

Amendment 34, in schedule 1, page 16, line 1, leave out ‘5’ and insert ‘3’.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister will be aware that this part of the schedule was substantially amended in the Lords at the Government’s request, after the Grand Committee debate. It now includes the proviso:

“The Non-executive Committee must, at least once in every relevant 5-year period, appoint a person or body to review and report on such of the Office’s reports as the Committee determines.”

All four amendments in this group deal with the same point, a factor that was discussed in the other place when the Government amendments were debated. They suggested that five years is too long. It is important to revisit the question. I have two concerns.

First, if the OBR waits the maximum five years before commissioning an external review of its reports, it will take us beyond the next general election. When setting up a new body, it is important to review its workings at a fairly early stage. I appreciate that there will always be the opportunity for people such as the Treasury Committee to look into the matter, but this provision is about an independent review to be set up by the non-executive committee. It will be an ongoing process, and getting it in motion fairly early in the life of the OBR is important.

Secondly, there are obvious political concerns, particularly if we have five-year fixed-term Parliaments. It is always possible that the external review could be carried out just after the general election, but I believe that it is important to put the OBR under a little more scrutiny before the election to ensure that it is up and running and doing its job properly. It is up to the office to decide when such a review is carried out and I am sure that the Minister will say that it will be a maximum of five years, but there is a danger that the office will decide that it wants to carry on in its own sweet way for as long as possible before asking someone else to pass judgment on it. Giving it five years’ leeway is too long. We believe that it should be three.

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

It is important for the OBR periodically to have an independent external review. As the hon. Lady pointed out, when the Bill was debated in the  other place, the question was asked how often the process should take place. We amended the Bill in the light of that debate.

Ultimately, if we have non-executives in place—they are an in-built external check on how the Budget Responsibility Committee is working—we have to allow them the independence to take a view on when external peer reviews should be carried out. As the hon. Lady said, they must be carried out at a maximum of every five years, and it is important that there is a periodic external assessment of how the OBR is working. Of course, there is nothing to stop those non-executives deciding that they want an external peer review earlier than that; for instance, they could decide to commission a review every three years. However, there is no doubt that such external reviews are not the only means by which the work of the OBR can be scrutinised between times.

The OBR’s work will be scrutinised under a package that comprises various factors. There is the duty under clause 5 to act transparently; its work will be open to ongoing challenge and review by well-regarded think tanks and academics whose time is spent commenting on economic matters. There is also a statutory requirement on the OBR to produce an annual assessment of the efficacy of its fiscal and economic forecasts. That will be done in the presence of the non-executives; they will be there on a day-to-day basis, to challenge internally how those forecasts are being done. Behind that, the OBR has said that it intends to establish an advisory panel of experts to support and challenge its work. We spoke earlier about the Congressional Budget Office; these provisions bring us into line with US practice.

The OBR’s integrity depends on whether people believe that it fulfils its role of producing independent, robust and credible economic and fiscal forecasts. In the difficult economic times of recent years, it has been a challenge for independent groups to achieve that, but in an underlying way they will be expected to be robust. The OBR will have every incentive to carry out its work to the highest standards of accuracy. It will set up a panel to advise it, and the non-executives will be there from day to day. We also have the peer review, which will be entirely external, and the OBR will publish its reports. There will be a huge amount of transparency on whether its forecasts and estimates are accurate. We do not need to fetter the responsibilities or decision-making powers of the non-executive directors.

I assure the hon. Lady that she has raised an important matter, but we believe that leaving the Bill as stands will allow us to ensure that the external review happens and is of high quality.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I beg to move amendment 35, schedule 1, page 16, line 7, at end insert—

I am sure that some members of the Committee will be pleased to hear that this is the last amendment to schedule 1, but it is one of the most important. We have  already discussed the matter in passing. It is about the OBR’s budget. The Minister said that a five-year budget had been agreed under the spending review, but given the precedents mentioned earlier of what happens in other countries, I believe that it ought to be subject to some sort of check from outside the Treasury rather than being announced in the Treasury’s spending review. We believe that the Treasury Committee should act as watchdog, to ensure that the OBR is properly funded.

The Minister says that funding is secure for five years. We do not know at this stage quite how much work the OBR will have to do; it will depend on economic circumstances. A certain degree of leeway has been given to the office to undertake additional work, and there is no limit on the number of reports that it can produce. The office may want to revisit the matter before those five years are up and make a plea for extra funding. It should not be a matter for debate between the OBR and the Treasury; the Treasury may say that the OBR has already made far too much noise and ought to be kept in its box. We therefore suggest that the Treasury Committee should be involved.

I am sure that the Minister will seek to reassure us that the Treasury wants the office to be able to do its work to the full, and that it will want to give it the resources to do so. I have already mentioned the concerns expressed in the other place by Lord Eatwell about the Parliamentary Budget Office that was established in Canada in 2008. A year later, after it had produced two reports critical of the Government, its annual budget was frozen, despite earlier promises that it would be boosted by a third. Sweden’s Fiscal Policy Council was set up in 2007 by the incoming Conservative Government, but on 18 November last year the council wrote to the Government pointing out the discrepancy between its remit—what it had been asked to do—and the resources that it had been given. The Swedish Minister of Finance is reported to have reacted negatively, suggesting that the council’s budget be cut.

Sweden and Canada are fairly respectable countries to which we would normally look for examples of best practice; there was another example from Hungary as well, which I will not go into now, not that I am suggesting that it is not as respectable and well thought of as Sweden and Canada. Those are examples of democratic countries that operate in a transparent and accountable way pulling the plug on resources for the equivalent of the OBR when they did not like how it was operating. They did that in the early stages.

I cannot imagine the Minister standing up in public and saying, “We don’t like what you are doing. Therefore I’m going to speak to my friend the Chancellor and take all your money away.” I am sure that she would not be so indiscreet, but there is obviously a danger that the budget could be gradually whittled away, whether by the front door or the back door, to try to hamper the OBR’s work. That is why it is important to ensure in the Bill not just that the OBR is properly funded but that there is check and balance through the Treasury Committee, which should have a remit to ensure that the funding is in place.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 1:30, 3 March 2011

We agree with the spirit of the amendment to the extent that it recognises transparency, and parliamentary scrutiny of the OBR’s budget. Clearly,  parliamentary scrutiny will be a hugely important safeguard of the OBR’s independence. However, the Government have already put a number of arrangements in place to ensure that there is confidence about resourcing for the OBR. Perhaps I could run through them and then back up the fact that they are sufficient by quoting what the current chair has said about the resourcing that he has to run the OBR.

The amendment would give the Treasury Committee an additional role in looking at payments and budgets. Aside from the logistics—it would be extremely difficult for the Treasury Committee to have, in effect, sign-off on the OBR making payments—the Treasury Committee has not asked for those powers, and it would be hard to make them work constitutionally.

In line with the Treasury Committee recommendation, the annual budget of the OBR will be identified separately in the Treasury’s estimate, so it will be available for the Treasury Committee to scrutinise there. The hon. Lady will be aware that the OBR has been provided with an agreed and publicly documented multi-year budget, so the annual budget exercise that she was concerned about cannot be used to exert pressure on it. In fact, that aspect of how the OBR has been set up has been welcomed by the IMF, which has, no doubt, looked at the examples of different countries that she gave and recognised that there is a real problem.

Interestingly, the hon. Lady mentioned the Canadian example. The Canadian parliamentary budget officer was not given an agreed, published, multi-year budget, which I think was one of the reasons why it was easier to reassess that budget downwards, if that is what happened. In the UK, we have set up an independent OBR, and we have been very clear about setting a five-year budget for it which is now in the public domain.

Additionally, in line with the Treasury Committee recommendation, the OBR will also be able to submit to the Select Committee an additional estimates memorandum alongside that of the Treasury in which it can explain for itself the reasons for changes in the available budget for the year ahead. The Bill gives the OBR’s non-executives a duty to report on anything that appears to them to constrain the OBR’s discretion, which could include any attempts to control the OBR by manipulating its budgets. I understand what the hon. Lady is trying to achieve with the amendment, but I do not think that it will deliver anything over and above the safeguards that are already in place.

My other concern is that, in expanding the role of the Treasury Committee, we could end up with a situation in which the Committee, having signed off on various payments made by the OBR, finds itself being summoned to the Public Accounts Committee, which might decide to inquire into the financial running of the office. That would start to muddy parliamentary scrutiny.

Finally, the Chair of the Treasury Committee, speaking of his ability to look at the financing and funding of the OBR, said:

“It is vital that the OBR has the resources it needs. The Committee will monitor this carefully: the Terms of Reference suggest that the Treasury accepts the importance of transparency and separate disclosure, and we will have the information we need to do our work.”

He clearly feels that he has enough transparency to do his job. There is the question of whether the amount in place will allow the office to do its statutory duty, and the hon. Lady made the point that one can ask someone to do something and then not give them the resources to do it. The chair of the OBR has already made it clear that he feels that he has adequate resource, and has said that he will promptly raise any funding issues with the Treasury Committee. In talking before the Committee he said:

“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.”

We have the right safeguards and the right people in place to ensure that the risk that the hon. Lady rightly identifies will not be realised in practice. I hope that, with that reassurance, she will withdraw the amendment.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 1 agreed to.

Clause 10 ordered to stand part of the Bill.