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The Deputy Chairman of Committees (Lord Colwyn): My Lords, I have the usual announcement to start with: if there is a Division in the Chamber while we are sitting, the Committee will adjourn for 10 minutes.
Lord Eatwell: My Lords, before moving on to Amendment 20, I shall make a couple of general remarks about how we have done so far. All sides want, I think, to make the Bill a success. That is not really a matter of political dispute. The Committee has already unearthed some serious failings in drafting. For example, on fiscal policy, the OBR is supposed not to regard a critique of economic policy as within its remit, but on the issue of judging the sustainability of fiscal policy the context of general economic policy is within its remit. What is it to do? Is it one way or the other?
Then there is the question of Clause 5(3)-the clause with the inverse meaning, as I think of it now. Everybody thought that it was designed to prevent something from being done, but then we discovered to our amazement that it is all about what has to be taken into account. This sort of obscurantist drafting gives the law a bad name. There were also the statements in the charter, notably the reference to "intergenerational fairness", over which we have the grave suspicion that the person who drafted the phrase had not the faintest idea what it meant.
Yet none of these is a political issue. None of them really merits the instruction, "Resist". All of them are items to debate and to correct. This is a fine example of why technical Bills such as this should go to pre-legislative scrutiny. Be that as it may, my message to the Minister and to the anxious officials behind him is: "Loosen up". Let us use this Grand Committee for the constructive purpose that it was intended to have and try to do what we all want, which is to ensure that this Bill works, works well and works for the long term.
With respect to Amendment 20, the OBR has made a major step forward in recognising the uncertainty around the probabilistic nature of economic forecasting -and quite right, too. However, this has clearly not yet penetrated the thinking of government Ministers.
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However, while the assessment and presentation of the uncertainty of forecasts have been greatly improved, no progress has yet been made on the other risks embodied in the Government's overall fiscal position. For example, it is now clear that for the last decade-and I recognise that this was under the previous Government-tax revenues have been overly dependent on taxation of financial services. The severe problems in financial services contributed disproportionately to the fall in government revenues and to the growth of the deficit. This, which is a sort of all-eggs-in-one-basket problem, is a standard feature of corporate risk analysis and could, with value, be introduced into the analysis of public policy as well. Similarly, everyone is now aware that the UK economy has become seriously unbalanced, which is just the sort of issue that would be highlighted by regular and careful risk analysis. If the OBR were to extend its analysis of uncertainty to include a risk-sensitive analysis of the public finances, it would provide a complementary and extremely valuable service to policy-makers and align public policy-making with the best practice in private policy-making and private risk assessment.
but associates the economic outlook only with the forecast, not with the state of the economy as it is. This amendment focuses attention on a wider concept of risk-the risk inherent in the underlying parameters of the fiscal and economic stance-and, by doing so, extends risk analysis into the areas of best practice that are now found in the private sector. I beg to move.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I am happy to start by saying that I agree that we should, as far as possible, stick to the technical. I am grateful to the noble Lord, Lord Eatwell, for confirming that he would like to make this a technical analysis of the Bill.
I agree that it is critical for the OBR to assess the risk to the public finances and that that should be clearly set out. The amendment proposes that this provision should be in the Bill, whereas we propose that it should be in the charter, first focusing on the economic risks and secondly focusing on the fiscal risks. As the noble Lord said, there are references to risks in chapters 4.10.1 and 4.10.2 of the draft charter: the first relates to the economic forecast and the second relates to the forecasting of the public finances. I believe that together those two references to risk give the OBR a clear and wide-ranging remit. I will think about the specific drafting in the light of the points that the noble Lord has made, but I believe that the charter is the right place for this. Clearly, the drafting on the sorts of risks that the OBR looks at should not
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The OBR has, of course, a duty to act consistently with the charter, so it should not be necessary to include this provision in the Bill. However, we must get it right in the charter, which is where I think we should leave it. I ask the noble Lord to withdraw the amendment.
Lord Eatwell: Gosh, that was quite a loosening up. I think that the noble Lord has taken the point. In my reading, the charter seems to confine risk analysis to the probabilistic analysis of forecasts-to the fan charts and so on. I want to stimulate the OBR to think about the risks inherent in the economic posture, if we may call it that, of the country at any one time. On the two illustrations that I gave, I think that if forecasters, particularly official forecasters, had been sensitive over the last decade to the excessive share of taxation coming from the financial services and had realised the risk of having all one's eggs in one basket or had been sensitive to the problems associated with the overall balance of the economy, which I know the Government wish to address, we might have had some danger signals hoisted earlier than they were. However, in the context of the Minister's assurance that he will look at this issue and perhaps amend the charter accordingly, I beg leave to withdraw the amendment.
Lord Higgins: My Lords, it should be convenient, as has been suggested, that we discuss Amendments 26 and 39 at the same time. This is an important aspect. We are going into a situation where the Government have an official forecast, but a great many other forecasts will be produced at the same time. The helpful document produced by the Treasury, Forecasts for the UK Economy, shows just how many other independent forecasts there are, but the OBR one will clearly have a particular and unique importance. If it is going to be compared with forecasts by other forecasters, we need to know the assumptions on which the official forecast is based, because we all know that the assumptions that are made essentially determine the outcome of the forecast.
I realise that the charter also refers to the assumptions being spelt out but it seemed more convenient in this instance to put that into the Bill. Indeed, I am inclined to think that this is so important that it ought to be in the Bill rather than in the charter. There seems to be general agreement in the draft charter that this should be so, but, I am not clear where these assumptions
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The other amendments also relate to what one might in simple terms describe as the "model". In this context, I am not clear precisely what model is being used. The Treasury had a model, of course, which was published and was used by various outside organisations, including the so-called ITEM group. Are we to understand that the OBR forecast will totally replace the Treasury forecast that used to appear in the Red Book? If so, is the OBR none the less going to use the same model that the Treasury used, or does it have a model of its own? In either case, it would be helpful if my noble friend could place in the Library, or publicise more widely, exactly which individual model is being used; we would then have a better basis for comparing it. Are we also to understand that if the Treasury model disappears, the ITEM group-for the benefit of Hansard, I should point that it is spelt out in capital letters rather than just being referred to as the "item group"-will go on using the Treasury model, or will there be a replacement?
I agree with the opening remarks of the noble Lord, Lord Eatwell, about the importance of getting the technical aspect of these matters straight. The technical arguments are important if the OBR's forecasts are to have the credibility that they ought to. I would be grateful if my noble friend could respond to those simple points so that we understand where we are going in the future. Perhaps he might point out to me where the assumptions are specified in the November document that was the first example of the OBR's work.
Lord Eatwell: My Lords, my noble friend Lord Peston suggested to me that I should follow the introduction of this group of amendments by the noble Lord, Lord Higgins, by speaking now to Amendment 39. As noble Lords will be aware, this is simply an alternative means of achieving the objective that the noble Lord, Lord Higgins, seeks.
One of the most important aspects of any piece of serious economic analysis is that it should be capable of being replicated. If the OBR's forecasts are to achieve the status that we on this side and, I presume, the Government hope for them, they must be capable of being replicated. This can be done only if full information is available at the time of publication.
The issue of replication is typically associated with the natural sciences, where replication of experiments is a fundamental requirement of any empirical scientific statement. However, the Minister may be unaware that it is now standard practice for any article published in a leading applied economics journal to provide the electronic address at which the data and other relevant information required to replicate the results in the article are available. In these days of large datasets and complex econometric models, data accessibility is critical to effective peer review-even effective assessment of whether any analysis or forecast should be taken seriously.
Amendment 39, in my name and the names of my noble friends Lord Davies and Lord Myners, will ensure that effective appraisal of OBR forecasts and other economic analyses are possible. As is made clear in the preface to the OBR report that we discussed last week, compiling the fiscal forecast requires detailed information from many government departments. That is why our amendment refers not only to data and methods but to costings, which the OBR are required by the charter to confirm. In other words, all the raw materials on the basis of which judgments have been made and forecasts have been constructed should be available for objective assessments of those forecasts to be made. This will not involve any significant extra burden on the staff of the OBR, since the data and costings must already have been assembled in electronic form for the OBR to do its work.
The noble Lord, Lord Higgins, raised an interesting point about the model that might be used by the OBR. We have been told that the Treasury will retain its own forecasting unit. We would like to know whether the forecasting model to be used by this unit is to be the same as the model used by the OBR, in which case any differences in forecasts would simply be matters of judgment. That would surely be a ridiculous duplication. It would be much better to develop alternative perspectives, since they can often throw fresh light on difficult problems.
In supporting the general line that the noble Lord, Lord Higgins, has taken, I simply add that we want to be in a position where serious researchers can replicate the approach and findings of the OBR in order to be able to evaluate them effectively.
Lord Peston: My Lords, noble Lords will be aware from my remarks last time in Committee that I would not have set up an OBR. I regard it as a waste of public money, to be perfectly honest, but I entirely accept that we are going to have an OBR, since the Government have a majority in the other place and in practice seem to have a majority in your Lordships' House. Therefore, I entirely agree with my noble friend Lord Eatwell that, if we are going to have such a body, we might as well make it a better one, rather than a worse one. Therefore, we have a duty to scrutinise the proposed legislation and come up with a variety of suggestions, in the hope of persuading the Minister that we could make a better fist of it than the Government have done so far. There I echo the remarks of my noble friend.
On this group of amendments, I repeat something that I said last week. The OBR's November economic and fiscal outlook report produced a series of forecasts that are not based on any recognisable or explicitly stated economic theory. This is forecasting without theory, which is slightly different from forecasting without a model, although the two are connected.
I have found it difficult to discover from the economic and fiscal outlook report what assumptions the OBR has made-and, presumably, will continue to make-about the way in which the economy works. The central issue as far as serious economics is concerned is whether it is assuming that the economy is a self-adjusting mechanism that will come to a full employment equilibrium-the kind of assumption that what I regard
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On a related matter about the facts and how seriously we should take the OBR forecasts as they are now, we have available, as the noble Lord, Lord Higgins, pointed out, the immensely helpful survey published by the Treasury of all the independent forecasts, to which I shall refer further on Report. I have analysed the independent forecasts statistically and it is interesting to note that, given the averages, standard deviations and the other statistical criteria, the forecasts of the OBR and the independent forecasters for 2010 and 2011 are much in step. However, it is extraordinarily interesting to note that the OBR forecast for 2012-that GDP will grow at 2.6 per cent per annum and will continue to grow at that kind of rate-is remarkably optimistic compared with the forecasts of the independent forecasters; it is statistically significantly different. The OBR has not discussed this matter, nor have outside commentators, but your Lordships-we shall return to this issue on Report-have to ask how the OBR has come up with this optimistic view.
There was a time when the Conservative Party believed in the free market-those days seem long gone-and would have taken it for granted that, as the independent forecasters overwhelmingly are in the business of making money from accurate forecasting, they have a tremendous incentive to forecast accurately. Therefore, if one had a choice, one's normal inclination would be to say, "If you believe in the free market, you will choose the free market forecasts as opposed to the OBR's forecasts". We shall return later to the significant issue of the optimistic OBR forecast for 2012 against the rather more pessimistic forecasts of the independent forecasters.
There may be two good explanations for the difference: first, many of the independent forecasters do not look that far ahead and we may have a biased sample of what we get from the Treasury; and, secondly, the OBR may have more information-for example, it may be better advised on government policy-than the independent forecasters. I am not saying that necessarily the OBR is mistaken; I am saying that the difference is, from any analytical and statistical point of view, noteworthy.
Lord Myners: My Lords, I, too, speak in favour of the amendment tabled by the noble Lord, Lord Higgins. Unlike my noble friend Lord Peston, I am in favour of the OBR. However, I share with my noble friend some anxieties about whether we need another set of economic forecasts. We should warrant another set of forecasts, in particular if the Treasury is going to produce its own, only if those from the OBR prove to be better and more accurate than those produced by commercial forecasters and other bodies. Therefore, it is important that we are able to analyse the forecasts made by the OBR, in order to understand the logic behind them and the assumptions that have been employed. That
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I have one question for the Minister. He has advised us that HMT will continue to produce its own economic forecasts. However, he has criticised HMT's forecasts on the grounds of their accuracy and the spin placed on them by politicians. If he believes that HMT was leant on by politicians, it would be interesting to hear some examples, because during my 18 months in government I saw no evidence of Treasury forecasts underlying government policy being influenced in any way by politicians. The Minister has also criticised the amount of content of HMT's published forecasts, including the fact that HMT did not publish forecasts for unemployment. Will he confirm that in future HMT will publish a full and comprehensive set of its own economic forecasts, which will in particular include forecasts for employment and unemployment?
Lord Sassoon: My Lords, this discussion has been interesting because it confirms how much material the OBR has already published, in its economic and fiscal outlook and alongside it, which enables us to have a richer discussion than we might ever have had in the past. I am grateful that the noble Lord, Lord Peston, is nodding. We have made considerable strides. I do not want to rake over old ground, as the noble Lord, Lord Myners, provokes me into doing, but we must keep coming back to the point that he makes by implication-namely, that we have employment and other forecasts in the 150-page economic and fiscal outlook document. We have many pieces of data that we did not have before and we will continue to have them in future.
I hope that we all agree that there is a huge amount of additional transparency. We have fan charts and all sorts of other things that make clear the basis on which the forecasts have been produced. These forecasts are in no way made or influenced by Ministers or their political advisers. I think that we all agree that transparency is at the root of what we are trying to achieve.
The amendments in this group seek to ensure that the OBR publishes the assumptions, economic analysis, data, methods and costings that it uses to compile its reports. We believe that that is absolutely achieved in the design of the structure that we have put forward. The OBR will have a statutory duty to act transparently. Chapter 4.8 of the charter states that,
We now have evidence from last Monday's document and the surrounding publications of the OBR about how it will do this in practice. Perhaps noble Lords have looked at the 20 Excel spreadsheets on the OBR's website. I suggest that these give convenient access to the forecast data in a way that has not remotely been done before. In addition to those spreadsheets, over 20 separate documents with supplementary information have been published by the OBR since August.
One of the tests of whether this meets the legitimate demands of the most sophisticated external forecasting bodies is what the Institute for Fiscal Studies noted earlier this year, which is that the OBR had by that stage already published more detail than ever before on the assumptions underlying its forecasts and on the impact that changes in those assumptions would have on revenues and spending. We have made a significant step change. A lot of the information is available in electronic form. The construct of the Bill plus the charter achieves what we all want from this.
I turn to the specific points raised, particularly by my noble friend. The OBR has complete discretion over the model that it uses and what methods go around the modelling. In its recent economic and fiscal outlook report, the OBR had already made some adjustments to the methods that it used in June, so it is moving the way in which it has adopted the Treasury model. The Treasury will continue to retain economic and fiscal forecasting expertise because ultimately Ministers need to be supported by a forecasting capability. That will include the possibility of the Treasury continuing to use its own model, but the official forecasts will be those of the OBR.
On the specific question of the ITEM Club and the model, the club will no longer have a statutory right to be given a copy of the Treasury model because that arose from the Industry Act 1975, which is being repealed. It will be for the Treasury to consider whether it continues to make the model available, but that will not be a statutory matter any more.
On how the arrangements between the OBR, the Treasury and other parts of government work, that will be set out in the memorandum of understanding, including use of the Treasury economic model, although of course it is entirely at the discretion of the OBR as to what tools, models and methods it uses.
On the question of where the assumptions are to be found, I can certainly find them littered throughout the document published last week, including, for example, table 3.6 on page 67, which as I read it is a mixture of inputs and outputs. There are other assumptions made right through the document.
On the critical question of the approach to economic forecasting raised by the noble Lord, Lord Peston, that is summarised in paragraph 3.7 on page 28. I am glad that people find the Treasury monthly report on the latest independent forecasts useful. It is intended that the Treasury will continue to publish that document and make it available on the Treasury website.
I think that the construct between the Bill and the charter covers all the issues on transparency, something that we all seek, and I suggest that the evidence so far of the OBR in practice means that we should have confidence in that construct. On that basis, I ask my noble friend to withdraw his amendment.
Lord Eatwell: I agree with the noble Lord that the amount of information that is published has increased, to general benefit. I spent a few happy hours over the weekend playing with the Excel spreadsheets on the OBR website and plugging them in to a model that I use to think about the economy. I found some interesting inconsistencies and will write to Mr Chote about them.
The point that has come up several times in our discussions concerns the balance between the Bill and the charter. The charter can be changed readily, as it is not primary legislation. We must give careful consideration to whether, for example, transparency as defined in the charter gives a sufficiently strong underpinning to the need to reveal information, or whether statements such as those in the amendment proposed by the noble Lord, Lord Higgins, or in those proposed by me and my noble friends, should be in the Bill. This has come up several times. It is an issue that we should take away and consider carefully before Report. Where should we strike the balance between an explanatory charter that gives guidance to the OBR and the statutory requirements? I do not have a firm opinion. However, on this issue I lean toward the idea that it should be in the Bill rather than in content that could later be amended. Of course, it would have to be put before Parliament-we know the charter procedure-but it can be changed. If we really care about this, perhaps we should put it in a form that cannot later be changed. This is a matter for future consideration.
Lord Higgins: My Lords, we are grateful to the Minister, who has clarified a number of points. I will come back to an obvious and fundamental one. I am still not in the least clear why we will have both an OBR forecast and an official one from the Treasury that will be useful for Ministers. I simply do not understand this.
Lord Sassoon: Perhaps I may clarify that. There will be one official forecast, which the OBR will produce. The Treasury will retain a modelling and forecasting capability, but it is absolutely not the intention, and will not be the case, that there will be another official forecast from the Treasury. Ministers simply require the Treasury to retain that capability, so that if, in circumstances that we do not at all anticipate, the Chancellor or the Treasury want to take a different view from that of the OBR, they will retain the capability of doing so. There is absolutely no intention that there should be anything other than one published forecast, which will be put out by the OBR.
Lord Eatwell: I do not quite follow that. If the Treasury is going to disagree, or at least have the capability of disagreeing, with a forecast put forward by the OBR, how can it do that other than on the basis of a forecast of its own? I note that the word "published" was slipped into the Minister's final sentence. Surely if the Treasury is going to have the capability of assessing and disagreeing with the OBR model, it must have some forecast of its own.
Lord Myners: Perhaps I, too, may make a comment. I took the Minister's reply to the question asked by the noble Baroness, Lady Browning, about situations where there is a difference between HMT's forecast and the
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Lord Higgins: I find this rather difficult. The Minister raises his eyebrows. I simply do not understand what the purpose of this forecast is going to be. Perhaps I may expand on that for a moment. We had an official forecast and we presume that the Government will operate on that basis, but apparently there is to be an internal forecast on which Ministers will base their decisions. The noble Lord is shaking his head.
Lord Sassoon: My Lords, there will not be another official internal forecast. There will be the forecast of the OBR, but that does not mean that the Treasury should not have the capability to-and it will-look at underlying assumptions on which the forecast is based, to make sure that it understands where the OBR is coming from and feels comfortable with it. There will not be some other internal official forecast; there will merely be a capability within the Treasury-and it is important that there should be such a capability-whereby Treasury officials can look at and understand the assumptions on which the OBR's forecast is made. That will not require, and there is no intention for, the Treasury to produce any separate forecast of its own.
Baroness Noakes: Perhaps I may suggest to my noble friend that much of the debate in Committee has been concerned with establishing that the OBR is properly independent of the Treasury. One of the corollaries of having an OBR that is properly independent and that we are all jolly keen to see in a separate building, with staff who are not too intertwined with the Treasury, is that the Treasury will have given away the ability to make some its own appraisals of the economic position. Clearly, it cannot leave itself completely denuded. It would be frankly ludicrous if, in setting up the OBR as a completely independent body to inform the public debate and to be the official forecaster, as my noble friend the Minister has repeatedly said, we left the Treasury with no internal capability to judge for itself whether or not it was happy with what was coming out of the OBR. It would therefore be entirely logical for the Treasury to retain some forecasting capability. In extremis, the Treasury may wish to rest its judgments on its internal forecasts, rather than those produced by the independent OBR, but even without those extreme conditions the Treasury will need to be satisfied that what is coming from the OBR is fit for the purpose of decision-making.
Lord Burns: My Lords, perhaps I may add to the point made by the noble Baroness, Lady Noakes. The OBR will produce two forecasts a year. Between them, data will emerge, conditions will change and all kinds of things could happen in the world at large. The Treasury will need to take a view during that period of whether or not the events that are unfolding are consistent with the forecasts. The Treasury will want to prepare for future announcements of one kind or another. It is hugely important that it retains the capacity to monitor what is happening to the economy in the mean time, to make an assessment of whether unfolding events are consistent with the OBR's previous forecast and to prepare itself for the work that continually goes on. One of my worries throughout the establishment of the OBR has been that some capacity within the Treasury will inevitably be required if the Treasury is to continue to do the job that it does month by month. The Treasury has to prepare Ministers for speeches, answering questions and making observations on whether or not the economy is evolving in the way that it thought. The idea that there should be no capacity left in the Treasury to make this kind of analysis is frankly unrealistic.
Lord Eatwell: My Lords, from our side, the point is not that that capability should not be there, as it clearly should be. However, confusion was introduced into the discussion by references to a Treasury model and forecasts, which puzzled us all, as opposed to having a capacity to critique and develop the modelling of the OBR.
Perhaps I may raise a further point in relation to the model. Over the past 80 or 90 years, we have had a huge difference of view as to whether one should adopt a Keynesian or a monetarist approach to these problems. My impression is that the OBR now has an essentially Keynesian approach and that the monetary aspect does not appear in the discussion at all, other than to say, "Well, of course, the Bank of England is targeting inflation", and let it go at that. However, as I have previously pointed out to the noble Lord, Lord Myners, and others, until we got into quantitative easing the Bank was concerned purely about the price of money-the rate of a single rate of interest-rather than the quantity of money.
I am not the least bit clear about the proposal as it now comes here and to what extent the OBR is taking monetary factors into account. Let me illustrate this by giving an example from many years ago. I am delighted to see that the basic approach to economic forecasting on page 28 is to decide on how much excess capacity there is and then to see to what extent aggregate demand gradually increases and absorbs that excess capacity. That was precisely the policy that we adopted in 1970 under the Heath Government. We said then, in the clearest terms, exactly what is being said now on page 28. Unfortunately, this was misinterpreted as a dash for growth and we were absolutely pilloried by those who said that the money
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Given that we are told that the Bank of England is going to make yet a third, quite different, forecast in addition to the, I am almost inclined to say, surreptitious one in the Treasury-I accept fully the point made by the noble Lord, Lord Burns-I am worried that the fiscal and monetary side is not sufficiently integrated in the forecasts.
Lord Myners: Further forecasts on the economy are made in government. I believe that the Department for Business also produces its own economic forecasts. Almost as many forecasts are produced in government as are produced in the private sector.
The noble Lord, Lord Higgins, makes an important point. This might not be the right forum in which to discuss this, but the balance of intent behind the decisions currently being made by the Monetary Policy Committee is more focused on the words that come after "and subject to that" in its remit than on controlling inflation-that is to say that, in an environment in which fiscal policy is reducing demand in the economy, the onus for sustaining demand is coming from monetary policy, with considerable risk, in my judgment, of inflation.
There is no recognition in the Keynesian thinking of this document about the importance of monetary policy. We have what the Americans call a saltwater analysis of economics rather than the freshwater or Chicago school analysis associated with the monetarist view. It will be interesting to hear the Minister's view on where monetary policy comes into the OBR's thinking.
Lord Sassoon: I love it when noble Lords preface their remarks by saying, "This may not be the place in which to discuss these things", and then go into freshwater and saltwater fishing. The noble Lord, Lord Eatwell, has already said that his study of the 20 spreadsheets has raised some questions that he will address directly to Mr Chote. If my noble friend Lord Higgins would like me to relay his questions to Mr Chote, I will be happy to do so-or he may wish to write directly. Either way, I will return to the amendment. We have so much transparency already that it is provoking lots of questions that I am sure Mr Chote and his colleagues will be happy to answer. I will be happy to act as postman if that would be helpful.
Lord Eatwell: My Lords, at Second Reading it was acknowledged on all sides of the House that requiring the OBR to write what was referred to by the noble Baroness, Lady Noakes, as its own school report was not the best way of achieving an objective appraisal of the office's performance. However well intentioned or even self-critical an organisation might be, it is inevitable that self-assessment embodies a number of allowances, or perhaps things taken for granted that have become embedded in the organisation and are not made explicit, with the result that the sources of any underperformance are not articulated as clearly as they might otherwise be. That is why the provision in the Bill for self-assessment is ultimately unconstructive and even damaging to the reputation of the OBR. Far better to have an external assessment-I will propose a form of external assessment later-that confronts all aspects of the forecasting, such as methods, data, sources, judgments and presentation. The greater credibility and novel insights of such an independent appraisal would enhance both the performance and the reputation of the OBR. The self-assessment procedure is unsatisfactory and it would be a great help if this provision were removed from the Bill by our acceptance of Amendment 23. I beg to move.
Baroness Noakes: My Lords, the noble Lord, Lord Eatwell, has already referred to the fact that I did not support the OBR carrying out an assessment of its own forecasts, as set out in Clause 4. I stick by that view, for the reasons that the noble Lord has given. However, I cannot support his amendment because, without another amendment, it would take out of the Bill a requirement for any assessment of the accuracy of OBR forecasts. I do not understand why the noble Lord has not grouped this amendment with later ones that would set up a peer review committee to perform this function. It would be a retrograde step simply to take out of the Bill a requirement for an analysis of the accuracy of the OBR's fiscal and economic forecasts. I would rather have an unsatisfactory review than none at all.
Lord Eatwell: I was hoping to provide space for those who feel as strongly as I do, as apparently does the noble Baroness, Lady Noakes, to suggest alternative arrangements. Indeed, I have put forward my own proposals, which we will discuss later, but a variety of methods could be suggested.
Lord Sassoon: My Lords, I, too, am a bit puzzled as to why we are discussing only half the linked story, but my noble friend has it right when she talks about the defective nature of this amendment in taking out the requirement for an assessment of the accuracy of fiscal and economic forecasts. No doubt we shall come to the question of whether there is any other way of doing it later, when I might not be quite so keen on what she has to say. However, I certainly agree with her that it would be inappropriate to remove the requirement for an assessment of the accuracy of the forecasts. It is an important requirement that there should be such an assessment-
Lord Peston: May I interrupt the noble Lord? I am totally puzzled now. The noble Lord uses the word "requirement". The people who comprise the OBR
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Lord Sassoon: My Lords, I am confused by this, because there are certain other things that I would have thought it would be impossible for the OBR to miss out, such as focusing its forecasts on government economic policies. Where there was a strong wish to put certain things into the Bill that were not there, now it is being said that it is blindingly obvious that the OBR would assess its own performance, so no provision is needed. What goes in the Bill and what does not are matters of judgment. It is my view that this is a sufficiently important matter to justify being included. The noble Lord, Lord Peston, will no doubt be comforted by that, because he has already played back to me the fact that the OBR has stated in its document, Analysis of Past Forecasting Performance, that it is,
It goes on to talk about giving further detail on its forecast methodologies. The office is going to do this anyway and I would like to think that it would be done without the Bill requiring it. However, it is sufficiently important that there should be absolutely no doubting the fact that it will be done.
This is not something that of itself is easy to do. The analysis of forecasting requires fiscal forecasting skills that are in scarce supply. To make the assessment requires access to and full understanding of the data. Critical to the whole process is that actually doing the assessment yourself makes it a learning experience. That goes to the heart of why Mr Chote and his team will do it anyway. We certainly expect to see the OBR doing this and the office has said that it will. However, in the Government's view the requirement should be on the face of the Bill. In the absence of a discussion that we have not yet had about alternative approaches, I suggest that this is where we need to leave it. For the moment, therefore, I ask the noble Lord to withdraw his amendment.
Lord Eatwell: While I agree with the Minister that doing an assessment yourself makes for a learning experience, having someone else do it makes for an even more pointed learning experience. I apologise to the Minister for the fact that he has been forced to speak half-heartedly about this amendment because he has not had the opportunity to discuss Amendments 40
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Lord Eatwell: I am grateful for the supervision. However, if we look forward, we will be discussing a set of amendments about which I feel very strongly in the context of reinforcing the powers of the OBR. If those amendments are accepted, that would require this amendment also to be accepted. While withdrawing the amendment at this time, I will be intrigued to see how the noble Lord, who will clearly appreciate the wisdom of my future amendments, manages to square accepting them with rejecting this one. In the mean time, I beg leave to withdraw the amendment.
Lord Barnett: My Lords, Amendment 25 is in my name and that of my noble friend Lord Peston. Everything that I have heard so far this afternoon in these brief debates confirms to me why my noble friend Lord Peston and I have been right to wonder whether the huge expense of setting up the whole of the OBR is worth it. In particular, this amendment relates to the whole issue and is central to it. Indeed, the only person whom I have heard using the word "audit" in relation to this 150-page OBR report is the Chancellor. He is worth quoting. He said:
"I can confirm to the House that the OBR and its new chair, Robert Chote, have audited all the annually managed expenditure savings in today's statement".-[Official Report, Commons, 20/10/10; col. 949.]
My experience of auditing is now a bit out of date. Indeed, once you become a major partner in an audit firm, particularly a senior partner, you do not do a lot of actual auditing. Yet I did a little before that and I am bound to say that, when you give a clear audit certificate, there are no exceptions to it. How on earth can you give an audit certificate in relation to the OBR report? The fact is that it is just not possible to give a wholly unqualified audit certificate in relation to the OBR report. Perhaps I might give one or two examples of why it is impossible.
The words "uncertain" and "uncertainty" go right through this report. Quite obviously, I am not blaming the OBR for that. If you are making, as it is, forecasts and assessments, there is bound to be uncertainty. It quite rightly admits that openly. It is not worth quoting all the examples when there are so many of them, but it refers, in the case of the central forecast, to significant uncertainty. Now if, in your report, you have a significant uncertainty that relates to the whole of the report, how on earth can the Chancellor say that everything that it has said is right and that it is all audited? Perhaps the noble Lord, Lord Sassoon, can tell me what it means. It is not clear to me. It is nowhere in the report, but it was at the heart of the Chancellor's Statement introducing the comprehensive spending review. He said that the OBR had "audited" the annually managed expenditure savings. In fact, the OBR report refers very often to "estimates". I assume that it will be accepted that you cannot audit an estimate. Page 25 talks about an "equal likelihood" of growth being up or down-it could be all kinds of things. To say that there has been an audit is clearly nonsense. It is done solely to let the public know that this great new independent OBR is giving the Chancellor an overall audit. However, it has not given him an audit, because it cannot. The report states that it is "difficult to draw conclusions", but the Chancellor says that there has been an audit. The report says that there are "expectations of interest rates"-I wish that the Chancellor would give me some examples of expectations that could be audited; I have never heard of one. I have not come across anybody who can give me a certain forecast of interest rates for tomorrow, let alone for five years, but those "expectations" are central to the forecast, which itself is significantly uncertain.
I worry about Robert Chote, who has taken on the job of chair of the OBR. It is clear that he is an independently minded man who did a great job with the Institute for Fiscal Studies. However, he is allowing the Chancellor to use him. I am very sorry to see it. The Chancellor is using the respected independence of Robert Chote, and now the OBR, to say what a great job he is doing. That is very worrying, because there is a clear danger of the very perception of the independence of the OBR being undermined. I have quoted previously from the foreword to the OBR's 150-page document, but it is worth doing so again. It states that,
It then lists the many government departments whose expertise has been used. Despite having asked Questions, I still have not heard from the noble Lord, Lord Sassoon, or from anybody else how often, either formally or informally, the OBR has met the Chancellor and his colleagues. It is not unimportant to know these things. It is all part of the very perception of the OBR. I hope that the noble Lord, Lord Sassoon, will at least see that it is important to accept the amendment, because it goes to the heart of the independence of the OBR, which the Government want to have us believe. I find it hard to believe. I am sorry that the Government are using-I use the word carefully-Robert Chote and his colleagues to give the Chancellor the aura of being right, when it is clear that they cannot do so and are not doing so. I beg to move.
Baroness Noakes: My Lords, the noble Lord, Lord Barnett, has gone a bit over the top in describing Mr Chote and his colleagues as being "used". The Statement made by my right honourable friend the Chancellor, to which the noble Lord referred, spoke of an audit of the annual managed expenditure savings. It was not an audit of anything other than one part of the totality of the package that my right honourable friend announced last month. The noble Lord has extrapolated from a relatively small use of the word "audit" into something much bigger that is not justified.
I agree, in a sense, that people such as myself, my noble friend the Minister and the noble Lord, Lord Barnett, who have an accounting background, tend to think that the term "audit" is reserved for this statutory audit function, has a very specific meaning and applies only to the audit of financial statements. However, the term means only "independent examination", and in that sense I do not see any reason why the figure should not be used.
However, I say to the noble Lord that even when considering the audit of annual financial statements, those statements contain loads of assumptions and forecasts. To do an impairment review, you have to forecast cash flows for 10 years and choose discount rates and things such as that to calculate the figure that you put on your balance sheet. For your pension liabilities, you have to do even more complex calculations involving even more assumptions about the future. So even "audit" has to deal with these difficult areas of future estimation, even within the concept of statutory audit.
It would be helpful if the Treasury were to be reminded that the term "audit" has a rather technical meaning; it would be better to say something like "has independently examined". Perhaps the Minister could take back to the Treasury that its lexicon could have that amendment added. I come back to my basic point, though, that the noble Lord, Lord Barnett, has gone a little over the top on this amendment.
Lord Sassoon: I am grateful to my noble friend for delivering my script for me. Perhaps I should declare my interest as a fellow of the Institute of Chartered Accountants in England and Wales. There is certainly a technical use of the word "audit" that we chartered accountants and other accountants are used to using. As my noble friend Lady Noakes has explained, my right honourable friend was using a more general use of the term. The Chancellor used the phrase in the very specific context of,
To be clear, there is no question of the OBR doing an audit in the sense used by, say, the National Audit Office. In the context in which my right honourable friend used the word "audit", it is completely clear that he was talking about scrutiny of those particular savings, as set out in the terms of reference given to the OBR when it scrutinised the Government's policy costings. If the noble Lord, Lord Barnett, wants clarity on the meaning of the word, the terms of reference are clear.
In answer to the questions about the number of contacts between the OBR and the Treasury, that information is now published on its website. Between
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The clarity over the OBR's role is provided for through the provisions in the Bill and the charter. There is no intention for the OBR to do an audit in the technical sense of the word. I hope that it has been useful to have had this short discussion to clarify that that is indeed the situation and, having agreed that, I do not think that we need to clutter up the Bill in the way that the amendment proposes. On the basis that it is not strictly necessary, I ask the noble Lord if he might withdraw it.
Lord Peston: My Lords, when it suits him, the noble Lord is keen on the casual use of language. Can I take it that "audit" does not now mean audit? Does it mean to scrutinise? Can we see the documentation corresponding to that scrutiny? Is it available?
Lord Sassoon: Indeed, my Lords, as I said, the form of the scrutiny is set out in the terms of reference given to the Office for Budget Responsibility for its review of the spending review and were published as part of the spending review documentation on the Treasury website. If it would help the noble Lord, I can read out the key paragraph of the terms of reference for the Office for Budget Responsibility. Paragraph 4, entitled "Economic and fiscal forecasts", states:
"The Spending Review will allocate spending between departmental expenditure and annually managed expenditure within the envelope set at the June Budget. As part of the Spending Review, and consistent with the approach taken in the June Budget, the OBR will provide independent scrutiny of the Government's estimated costing of annually managed expenditure (AME) policies".
Lord Peston: I am sorry, but I would really like my question to be answered. I do not want to know the form; I want to see the actual scrutiny. Nothing in the big document includes that scrutiny. The Chancellor claimed, using the Minister's words, that the OBR had scrutinised all these expenditure savings. I should like to see the document which says, "We looked at this and this is our analysis". I want to see the scrutiny; I do not want to know how the office did it. I want to know that it was actually done. I have not the faintest idea of where to look for this scrutiny, but it is not in the big document-which is what I call it because I cannot remember its name. Where is it?
Lord Sassoon: My Lords, the scrutiny is one of the things that underpin what the noble Lord calls "the big document". If the OBR had any questions about the AME numbers, it would litter its document with commentary on it. However, it is quite clear from the terms of reference given to the office by the Treasury that it was required to and did scrutinise the AME numbers and was free to make any comments it felt like making on them.
Lord Sassoon: I would need to go back to the Treasury website, but I believe that in among all the supplementary documents there is a commentary. That is on the website, but I do not have with me the suite of documents which back up the big document. However, I believe that the material is set out in the supplementary documents. I would be happy to send the noble Lord a reference for where to find it.
Lord Myners: Before we rush away to look for this information on the website, let me say this: the noble Lord is a Minister within the Treasury and shares a floor with the Chancellor of the Exchequer, so no doubt he can give us some sense of how this scrutiny operated. I am trying to imagine in my mind's eye the 12 or so employees of the OBR scrutinising annually managed expenditure. I am trying to imagine how they would look at the AME of the Department for Culture, Media and Sport, let alone its subdivisions, or the AME of the Department for Work and Pensions. Can the Minister at least give us a flavour of how that work was conducted? That would whet our appetites before we see the full information on the website, as he has assured us we can.
Lord Sassoon: As the noble Lord knows very well, if he would like to ask the question, I will pass it on to Mr Chote and his colleagues who, I am sure, would be happy to answer on how they carried out those parts of their remit. It is for them to say how they carried out their remit, and if the question has not been answered satisfactorily by the information already published on the website, I am sure that they would be happy to respond to further questions. Again, I offer my services as post boy, if the noble Lord would like me to pass on the question.
Lord Myners: I am not sure that the answer is entirely satisfactory. The Chancellor described this as an audit. He went beyond the language used by the OBR. We are asking the Minister of the Crown, based in the Treasury, to give us a sense of how this scrutiny was conducted. I am beginning to feel that the Minister does not know the answer. If that is the case, it would be helpful if he said, "I have no idea how this was scrutinised", after which the Committee could form its own view.
Baroness Noakes: My Lords, the Opposition are getting overexcited this afternoon. The small phrase in the announcement made by my right honourable friend the Chancellor that there has been an audit of the AME savings is being considerably overinterpreted. As my noble friend suggested, it would be helpful if Mr Robert Chote were asked to say how he conducts this aspect of his work. I am sure that if there are then further questions that noble Lords wish to raise, they will be able to. It would be helpful if my noble friend references any material that is already publicly available. However, it is not reasonable to go beyond that this afternoon.
Lord Eatwell: While agreeing with the noble Baroness, Lady Noakes, I think that there is an important point here. If there is a process of scrutiny that is designed to give us a degree of confidence in the Government's
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Lord Sassoon: I am grateful to my noble friend for trying to bring this back into perspective. Of course the OBR scrutiny, as the noble Lord, Lord Eatwell, acknowledged just now, will be based on challenging the assumptions underpinning the AME costings. How it then formed the judgments that it did is for the office, not me, to interpret. However, I am happy to point noble Lords towards what has been published and see whether there is anything else that the OBR thinks would be helpful to say on the matter after the discussion this afternoon. Clearly, the OBR will not sign off on its scrutiny of AME savings if it does not think that the methodology and the numbers are reasonable.
Lord Barnett: My Lords, there is no need for noble Lords to waste their time looking at websites. I submitted a Written Question to the Minister asking when the OBR scrutinised these particular points. The Answer stated that the noble Lord, Lord Sassoon, passed my question to Robert Chote, who quickly gave me an answer. He referred in particular to chapter 3 of the 150-page document. I went through chapter 3 very carefully. Like the noble Lord, Lord Peston, I could not see in the whole of the chapter any details about scrutiny-far from it. Chapter 3.2 states:
How do you scrutinise that? Or perhaps you should audit it. Or perhaps I have been going over the top, as the noble lady, Baroness Noakes, said. If I really wanted to go over the top, noble Lords on the Committee would know that they have heard nothing yet.
The noble Baroness, Lady Noakes, seems to think that she is still sitting on the Front Bench. I do not mind that. She was very good on the Front Bench. Occasionally she got it right. However, today she tells me that I am over the top. I wish someone, perhaps the noble Lord, Lord Sassoon, would explain where I am over the top. I have said that Robert Chote is being used by the Treasury. That is undoubtedly the case, and all that this brief debate has done is emphasise that. Indeed, the Minister has still not replied, or perhaps he has accidentally overlooked replying, to my Question about how often since or before this report Robert Chote and his colleagues met the Chancellor and other Ministers.
Lord Sassoon: Forgive me, but I went through the detail of what was published on the OBR's website by Mr Chote, and I shall say it again. According to the document released by the OBR on its website, between
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Lord Barnett: I must tell the noble Lord that I may not be doing my job properly, but I do not spend my life going through Treasury or OBR websites. Perhaps I should; it might make me better informed. I would not go "over the top", as the noble Baroness described me. I doubt it. It might make me even more so. The noble Lord, Lord Sassoon, has now told us information that I confess I had not read on the website. It may be that every other Member of the Committee has read it on the website.
Lord Barnett: I am sure that the noble Baroness, Lady Noakes, read the website carefully. She did not quote it to me, but I now have the figures, which are a bit disturbing. I will read them with greater care later. Once again, Robert Chote is doing the job that the OBR is being set up to do-to tell the world how good the Treasury is. I had a little experience at the Treasury for five years. Officials are excellent, in my experience. I can see them over there, but they are not nodding, because they would not do that. The noble Lord, Lord Sassoon, can nod on their behalf. He is quite right; they are very good. I always found them to be excellent. However, that does not make the Chancellor right in saying all the things he says, either in introducing the comprehensive spending review or at any other time. I confess not only to being not over the top but to being too moderate in my remarks. I am very concerned.
Lord Myners: My Lords, in many ways the points that I want to make here have already been made by my noble friend Lord Barnett regarding an earlier amendment, and I run the risk of being accused by the Minister of, in his term, raking over the coals again. The key issue here, though, is to ensure that Mr Robert Chote and his two fine colleagues on the committee of the Office for Budget Responsibility are not put in a place where their words are taken to be saying more than they actually do.
As noble Lords know, I continue to express support for the creation of the OBR and of the appointment of Mr Chote and his two colleagues. I also commend the Government for the steps that they have taken to ensure that there is an independent process around appointments to the committee of the OBR. I regard the document published last week as being a significant improvement in financial governance in the country.
It is therefore perhaps somewhat churlish to say, "This is all very good but perhaps we should have a little more", but there was one thing missing last week in the Chancellor's Statement to another place. He put a lot of spin, to use tabloid language, on the OBR statement. He is not the first Chancellor to do that; his predecessor but one was particularly prone at times of the Budget and the Pre-Budget Report to putting spin on information contained in the Budget-indeed, to the point of often forgetting to mention things that were in the Budget which were subsequently regarded as being very important. I would not want to see the OBR used in the same way.
The purpose of my amendment is to seek to ensure that, when the report of the committee of the Office for Budget Responsibility is produced for Parliament by the Chancellor or by a Treasury Minister, there is a reasonable test of the completeness and the accuracy with which the report is described to Parliament. As the noble Lord, Lord Barnett, has already indicated, the report last week is replete with language about uncertainties, such as fan charts and the use of terminology to suggest probabilities and risks around central forecasting.
Indeed, the Minister, in answering questions in the House and in other interjections, has referred on many occasions to significant improvements in the form of presentation including, in particular, the use of fan charts. Yet in the Statement made in the other place by the Chancellor, as repeated in our own House by the Minister, we were given the sense that this was an endorsement, a seal of approval, for the Government's economic strategy. There was little or no any mention of any of the risks and uncertainties around forecasts, and no sense of a complete picture. For instance, the OBR is clear that over the next few years there will be a significant squeeze on real incomes. The difference between the projected rate for the RPI and the rate at which earnings are to increase is significantly negative over the next few years. There was not a single word of mention about that factor, which is very important for many families in this country, in the Chancellor of the Exchequer's Statement to the other place.
I am being fair and honest in my observation that I believe that his predecessor but one may well have been inclined to give a similarly high-level summary of the content of the OBR report, but I suggest that if the OBR was in a position to say that it did not believe that the way in which its conclusion was presented to Parliament represented a fair, balanced and complete presentation, that would be a significant endorsement of the independence of the OBR and would protect it from the danger that my noble friend Lord Barnett cited earlier-namely, that the committee of the OBR, in its naivety, may be used by politicians to project a different set of conclusions from those which the committee had in mind. I beg to move.
Lord Newby: My Lords, I am sure that all noble Lords wish that Chancellors were models of balance and completeness in the way in which they present figures, but the noble Lord, Lord Myners, is placing an unrealistic burden on the OBR if he expects it to undertake this task. For example, he uses the word "balance"; balance is not an objective fact but, to a considerable extent, is a subjective view. That goes equally for "completeness"-at what point does the failure to refer to the paragraphs on page 73 in the OBR report render the Chancellor's statement incomplete? When the Chancellor has made a political speech on the economy, to expect the chair of the OBR to audit it, to coin a phrase, in some way as the noble Lord suggests is, frankly, impossible. While I agree with the sentiments behind the amendment, I do not think that it is workable.
Lord Burns: My Lords, I support the remarks of the noble Lord, Lord Newby. The noble Lord, Lord Myners, knows that what he is asking for is impossible; we also know that he can be very good at creating a little bit of mischief every now and again and we have to see this amendment in that light.
The OBR can be responsible only for its own documents; it cannot possibly hold the Chancellor to account. That is a job for Parliament, including the Treasury Committee and the Economic Affairs Committee. I can think of nothing that would make the job of the OBR more impossible than to give it a task that began to resemble this. The key thing is that the OBR has to be kept out of the political debate but the noble Lord, Lord Myners, implies that he would like to plunge it directly into that debate. I am sure he has used the amendment as a vehicle to make quite sensible points about some of the practices that occur from time to time, but the OBR will not protect us from those.
Lord Sassoon: My Lords, the noble Lord, Lord Myners, accused himself of being churlish. The noble Lord, Lord Burns, accused him merely of creating mischief. I offer no view, but agree completely with the noble Lord, Lord Burns, and with my noble friend Lord Newby, that his amendment would widen the OBR's remit into completely inappropriate and vastly different territory from that covered by the Bill. The very focused remit in the Bill covers forecasts and the sustainability of the fiscal position. I noted that the
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That is exactly where the amendment of the noble Lord, Lord Myners, would take it-well beyond the sustainability of the public finances, which should be its remit. I ask him to withdraw his amendment.
Lord Myners: My Lords, far be it from me to wish to cause mischief. I have listened with great interest to the contributions of the noble Lords, Lord Newby and Lord Burns, and of the Minister. The Minister is correct that the wording of my amendment is very wide-wider than the OBR itself. However, I have often found it helpful in life to start wide, listen to the wise comments of others and narrow down. The noble Lord, Lord Newby, suggested that the word "balance" was capable of widely differing definitions, which would raise issues of implementation, and that possibly the phrase "absence of bias" might be better. I will reflect on that before Report. For the time being, I beg leave to withdraw the amendment.
Lord Peston: My Lords, of course I tabled Amendment 29 before I had heard the Minister's replies to many other amendments. What he emphasised most was the independence of the OBR and its ability to make up its own mind what it wants to do. I assume therefore that when I say it should be able to do this, he will get up and say that it can if it wants to. I do not think that I need to detain the Committee much longer, but I would like to hear the Minister confirm that the OBR can do what it wants. I beg to move.
Lord Sassoon: I shall try to be almost as brief. I agree absolutely that the OBR should have access to external expertise and that there should be appropriate transparency around this. The design of the OBR will allow it to have access to external expertise as it sees fit, and indeed the office held a range of discussions
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My only difficulty with the amendment is that the office would be required to publish the evidence taken from expert witnesses. I think that it should be for the OBR to determine what it thinks it is appropriate to publish. That is because we do not want to constrain freedom of exchange. The office has a general statutory duty to act transparently, within which context obviously it will think carefully about what it should publish. Further, although I hope that it will not be necessary, there is of course the backstop of the Freedom of Information Act to which the OBR is subject. I think we should leave it to the discretion of the OBR to choose to publish evidence from such experts as it consults.
Lord Peston: I thank the Minister very much for that answer. I, too, am making the assumption that the OBR will read our debates and therefore know what we think. Subject to that, I beg leave to withdraw the amendment.
Lord Higgins: My Lords, it may be convenient also to consider Amendments 31 and 32. When I first looked at Clause 5(3), it seemed fairly straightforward. It states that if the Government's policies are relevant to the OBR's performance of its duties, the office should not look at any alternative policies; that is, it should not suddenly say, "We want to look at the policies of the Labour Party as well as those of the coalition and make a comparison between the two". That is what I understood it to say. The alternative proposed in one of the later amendments is rather more stringent than that, in that it effectively provides that the office should not look at any alternative policies at all, while the other amendment says that it should. So, in a sense, we have a choice. On balance, it is arguable that the Government, having reflected on this, came to the view that the OBR should not look at alternative policies, which might create a very confusing situation. Nevertheless, the subsection does seem to be unnecessarily restrictive.
To my surprise, during a discussion in our previous Grand Committee, it turned out that the clause was intended to do something quite other than what it appears in simple terms to do, and we had a lengthy discussion about that. I still do not understand either what the amended interpretation was supposed to do or how it would do it. It would be helpful if the Minister could give us some idea of that now, or alternatively could consider the matter further. However, as it stands, the provision seems to be quite straightforward. I beg to move.
Lord Eatwell: My Lords, when I prepared my speaking note for a discussion of this series of amendments to Clause 5(3), I wrote the following: "The intention behind Clause 5(3) is clear and sensible". I now realise how enormously wrong I was in that observation, because, following our discussion last week, to which the noble Lord, Lord Higgins, has just referred, it is apparent that Clause 5(3) is neither clear nor sensible. These amendments give us at least an opportunity to talk around the issues and provide some material for the Government to help them to bring forward-as I hope and am confident they will-their own amendment to Clause 5(3).
Amendment 31 was prepared when I thought I knew what the clause meant: that the OBR should focus on developing a successful forecasting methodology and applying it to the evaluation of government programmes alone, keeping out of the arena of political controversy. The noble Lord quoted me on that just now and I stand by my belief that it should be the case. Even on these grounds, the clause is not well drafted. As I pointed out at Second Reading, it might be possible to conceive of opposition policies that do not impinge on government policies. My example was of an employment programme for which funding had been secured from the European Union so that there was no impact on the Government's fiscal stance. Such a programme would not be an alternative but an addition to anything that the Government themselves were doing. Therefore, there is a degree of ambiguity as the clause stands.
My Amendment 31 seeks to eliminate this ambiguity by stating explicitly that in so far as OBR reports include an assessment of the impact of policies, reference should be made to government policies alone. I believe that my redraft of Clause 5(3) unwittingly achieves with far greater clarity what we now know the Government were hoping to do with their subsection, which is rather messy-indeed, hopeless-at the moment. It embodies the positive statement that government policies should be taken into account, which is what we were told it was supposed to do last time, and ensures by the use of "only" that policies emanating from elsewhere will not be part of the appraisal or forecasting activities. I think that I have actually cracked the Government's problem for them.
It will be evident from what I have said that I disagree with the goals of the amendments moved by the noble Lord, Lord Higgins, which would take this out altogether, or tabled by my noble friends Lord Barnett and Lord Peston. I say that the OBR should focus on the Government alone and that it would be unfortunate if it were turned into a sort of policy referee. It might be possible if economic forecasting was a precise science, but it is not and there will always be a certain amount of judgment involved. It is not like a measuring rod with which you can say whether something is accurate. That is not what economic forecasting is about. At an appropriate time, I will move Amendment 31. I believe that the Government will bring forward something like this to solve the problems that we have identified in this part of the Bill.
Lord Higgins: I should perhaps have said in my opening remarks that I had, in effect, had second thoughts. It may be that my amendment simply leaves open the question, but we really want to clear it up.
Lord Peston: My Lords, I speak to Amendment 32, which is in my name and that of my noble friend Lord Barnett. When I first saw subsection (3), I must say that I was appalled, in particular by the words "may not consider". This body is supposed to be independent and, unless we are to get a new form of thought police brought in here, can presumably consider anything that it likes. That does not mean that it should be involved in a report on itself. However, to tell a group-at the moment, a group of three expert economists-that what it can think about is limited by an Act of Parliament is absolutely absurd. I draw the Committee's attention to what "may not consider" means; that you cannot even think or talk about something and that it has nothing to do with you. This is incompatible with the group's independence and professionalism. I wonder what serious, self-respecting economist would wish to work under those circumstances. I would not, under any circumstances, be willing to work and be told that. I can remember the sad old days in the Treasury when everybody was told that under no circumstances were we ever to discuss or use the word "devaluation". It did not have any effect: we just did it privately or secretly, and so on. That was the worst example of this that I can remember.
I was appalled by this subsection and I thought that taking out "not" was the best way of dealing with it. However, the method proposed by the noble Lord, Lord Higgins, is better still: take out the whole subsection. It may well be that we could put in another clause of a more positive nature. It is perfectly obvious that the OBR's job is to consider the whole issue in the context of government policy, because, as the Minister has emphasised-although I slightly disagree with his logic-the OBR is not a decision-making body, it is just a forecasting body. I do not entirely accept that distinction, as noble Lords are aware, but I can at least see the Minister's position. I accept what my noble friend Lord Eatwell and others have said; that forecasting is the OBR's main role. There should not be a clause in what will eventually be a statute telling the OBR what it may consider, unless the meaning of "consider" in the English language has changed. My general view is that the approach of the noble Lord, Lord Higgins, was much better than mine or that of the noble Lord, Lord Barnett. We should remove subsection (3).
Lord Newby: We had a long debate on this issue at our previous meeting and I am not going to rehearse all the arguments. I suggested, out of frustration, that we were spending too long on this form of words, which, in slightly more words, actually had the same purpose as Amendment 31. We did not spend any time looking at it, because we were considering the amendments in order. However, Amendment 31 is clear and achieves the purpose that we sought to achieve in our debate last time, which was that the OBR, in making its assessments, obviously should take account of government economic and other policies. Equally, in the context of the second part of the subsection, the OBR's role
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Lord Burns: My Lords, I agree with the noble Lord, Lord Newby. I had hoped that the purpose of the clause was to restrict the activities of the OBR to avoid it getting into political trouble. There are two clear cases where I could see this happening. One is where it is asked to continue a practice that has emerged in the past 20 or 30 years, whereby a Government ask the Treasury to cost the opposition manifesto as an election approaches. That practice has been divisive and has not suited anyone. I had hoped that this clause, by restricting the OBR to consideration of government policies, would prevent the Government or anyone else-for example, the Treasury Committee-asking it what the effect would be of implementing the Opposition's manifesto.
The second thing that I had hoped would be avoided was getting into the sort of detailed arguments that took place in the summer about what the effects of particular packages of measures would be on economic activity, unemployment, the PSBR and so on. The remit given to the OBR by the Bill, as I read it, is to tell us what the effect would be on public finances of a whole set of government policies, taking into account the world environment and everything else, and whether or not the Government are on a sustainable path as a result of that collection of policies. That remains very challenging and is what the OBR's job should be restricted to. It is set out early in the Bill. I had assumed that this clause was there to prevent encroachment, or a widening of the OBR's remit to include a number of other things, all of which would lead us into a difficult area of political activity.
Lord Burns: My Lords, for the reasons that I have set out about the importance of the political impartiality of the OBR, I felt that the original subsection (3), although a little inelegant, did much of its job. However, I also support the spirit of Amendment 31, although I am a little concerned about the use of "effects", which could in future give someone the opportunity to ask to have particular subsections of government measures analysed for their effects on the economic outcome and on the public finances. I worry that going down that road could cause problems in future.
Lord Sassoon: My Lords, perhaps I might go back to confirming what we are seeking to do and not to do in the Bill. We have discussed all these related issues at some length. The noble Lord, Lord Burns, has got it pretty much spot on in terms of what we are trying to achieve, but for the avoidance of doubt I shall restate it.
With regard to the core forecasting remit, the intention is that the OBR should consider government policies and not other policies. To take the point made the other day by the noble Lord, Lord Eatwell, we want to ensure that the OBR can take account of external shocks, for example, so in technical drafting terms his amendment would not quite work as it focuses narrowly on policy. We agree, anyway, that it is the Government's policies and not other policies that need to be considered. We must not leave out the fact that, in doing the forecasts, the OBR can look at scenarios and at other issues.
With regard to the noble Lord's specific question about an EU-related policy, either it has been adopted by the UK Government and is therefore included in government policies or it is not. Either the EU policy example has been adopted as policy in the UK or it has not, therefore it falls accordingly. That would get picked up, so that much is clear. Equally, it is the clear intention that the OBR should not be drawn into costing alternative policies, whether they are opposition policies or just other scenarios or partial packages of policies. That is what is intended by the construct in the Bill, and part of it is clarified by paragraph 4.12 in the draft charter.
Even though I am convinced that the Bill achieves what most, if not all, of us are trying to achieve in these various respects, I take to heart the fact that we have spent a lot of time going around the interaction of Clauses 4 and 5(3) and, to an extent, the relationship with Clause 1. Notwithstanding the fact that I think that the Bill works as drafted, I am listening carefully to all the points being made. I will go away and see whether anything can be done to make it even clearer in the Bill what the intentions are. However, it is difficult drafting. We should certainly not take out Clause 5(3) in its entirety, because, as the noble Lord, Lord Burns, pointed out, we want to make sure not only that the forecasts are concentrated on the right thing but that the OBR is not drawn into other political controversies.
Lord Peston: Can the noble Lord give one clarification on that? We all agree that, if we are going to have an OBR, we must keep it out of political controversy, but do the "government policies" to which he referred include the behaviour of the Monetary Policy Committee of the Bank of England?
Lord Sassoon: When I talk about government policies, I mean government policies. What assumptions the OBR makes about monetary conditions, interest rates and so on touches on an issue about which my noble friend Lord Higgins asked earlier. I have undertaken to relay his request to see whether Mr Chote wants to say any more about how the OBR considers monetary policy issues. Certainly, while I said that the OBR should consider government policies, there are lots of other things that it needs to consider. It is clear that it is making assumptions about interest rates and so on that are taken broadly from what the Bank of England lays out.
Lord Peston: Since we are putting this on the statute book, is it the case that the OBR would not be offending the law, as it will eventually be, by paying
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Lord Sassoon: In summary, I cannot promise that there is any way of making all this clearer. I think that there is consensus among us as to what we are trying to achieve in this area. I shall think hard about whether we can make it even clearer. On that basis, I ask my noble friend Lord Higgins to consider withdrawing his amendment.
Lord Eatwell: Before the noble Lord withdraws his amendment, I agree entirely with the Minister that there is a clear degree of consensus on what we are all trying to achieve. However, there is a degree of consensus that Clause 5(3), as currently drafted, does not achieve it. When we have concluded Committee, I intend to write to the Minister about this matter and a number of others where I think that we have total consensus on what we want to achieve and even perhaps to suggest meetings prior to Report to sort it out. That way, everybody can be clear about and comfortable with what we shall in due course pass into law. Having said that, I really do not see how Clause 5(3) can survive as currently drafted but, given that we are now really clear about what we want to do, we can sort something out.
Lord Higgins: My Lords, the whole purpose of a Committee stage is to get to the bottom of certain difficult aspects of a Bill. I am sure that it is right that the Minister should look at the matter very carefully between now and Report, in particular with the parliamentary draftsmen. I have no doubt that the noble Lord, Lord Eatwell, and others can look at it as well. It might be helpful to keep in touch on whether we all agree on the amendment to table or whether we should put down alternatives. At all events, I beg leave to withdraw the amendment.
Lord Eatwell: My Lords, Amendment 36 refers to Clause 6(1)(b) and seeks to remove the attempt to qualify Clause 5(2). I begin by confessing that, on close inspection, my amendment is imperfectly drafted. I did not wish to eliminate any guidance that the charter might provide with respect to the beleaguered Clause 5(3) because guidance is certainly needed there. However, if Amendment 31-or something like it-appears on Report, the qualification of Clause 5(3) will be unnecessary. The core purpose of the amendment is to remove the ability of the Government to use the charter to qualify Clause 5(2).
Noble Lords may think that the terms "objectively", "transparently" and "impartially" are perfectly well defined by the Oxford English Dictionary and that no further guidance or qualification is required and, if they examined the draft charter, they would find that they were absolutely right to think that. Taking just one of the words which one would think would be easy to understand, I invite noble Lords to consider the charter definition of "objectively". Paragraph 4.7 of the charter states that this means that,
In Clause 5(3), which we have toiled over for some time, the OBR is required-as we all agree-to consider government policies that are relevant to its forecasting duties. Let us suppose that the OBR demonstrates that a particular government policy results in an increase in unemployment-and one must give credit to the Government and to the OBR for now publishing unemployment forecasts-then, as it is universally accepted that unemployment is a bad thing, such an assessment will inevitably reflect on the merits of the policy. If it increases unemployment, that is a bad aspect of the policy and is a comment on its merits; it cannot be anything else. Therefore the definition of "objectively" has been qualified in such a manner that it no longer has the generally accepted meaning of the word.
If we accept the guidance of the charter, the OBR could not comment on what is happening to unemployment because employment and unemployment are universally accepted as merits and demerits. Trying to define these words is simply an exercise in exclusion and limitation. The words have clear, commonsense meanings. Moreover, as the noble Lord, Lord Turnbull, told me earlier, the word "impartiality" in government circles has already been defined by the Committee on Standards in Public Life. A definition of the word exists in government life and it does not require another
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The question is: why do we need this? The fundamental danger in Clause 6(1)(b) is the possibility of further guidance distorting the normal meaning of words that are fully understood in common parlance. It is far better to rely on common sense in understanding these words. The lack of qualification gives them strength; any qualification would seriously weaken their value. I beg to move.
Lord Turnbull: I support the amendment, at least in so far as it relates to Clause 5(2), for much the same reasons as those set out by the noble Lord, Lord Eatwell. These words are meant to be drawn either from the seven tenets of public life set by the Committee on Standards in Public Life, or from the synonyms for them in the Civil Service Code. If there is any amendment to be made it is that Clause 5(2) should bring the words used into line with the accepted vocabulary that is used in these other documents. You would then dispense with Clause 6(1)(b) as it relates to subsection (2).
At Second Reading, the most telling criticisms that were made on an occasion where this initiative was largely welcomed, was the sense that independence was being granted with one hand by the Treasury and that another clause subtly began to claw it back, and that this somehow undermined the sense of true independence. We can dispense with this and, if any changes are desired, the wording of Clause 5(2) can be brought into line with the vocabulary that is used in these other statements of the values of public life.
Lord Sassoon: My Lords, I find this interesting because what the noble Lords, Lord Eatwell and Lord Turnbull, have said exemplifies why we need some back-up explanation of these terms in the charter. That must be the right place for it because the noble Lord, Lord Eatwell, started by saying that we could rely on the Oxford English Dictionary definition of the three terms but then went on to refer to the usage given to the terms by the Committee on Standards in Public Life. That in itself points out that, even on his construction of how these words should be used, there are at least two sources. I have neither the OED nor the committee's statement in front of me, but I would be surprised if they were precisely the same. Then the noble Lord, Lord Turnbull, referred to the Civil Service Code.
In arguing for the amendment, the noble Lords have precisely explained the difficulty that we are in: however you do it, you go back to different sources for the meaning of these important terms. It is therefore important in the charter to try to tease this out. I agree that this could be done in a number of ways; it could refer to the OED, the Civil Service or a number of other things. However, this discussion has reinforced my view that somewhere we need to provide some guidance.
I shall give the Committee another example, very much in this space, about the kind of difficulty that we can otherwise get into, and this relates back to one of our previous discussions. The US Congressional Budget Office has an impartiality remit, but it defines
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"I think you want to make sure that the remit of the OBR is agreed ex ante, rather than the subject of a contentious debate ex post on whether it is doing what people want it to do ... if it is left to the OBR on its own to draw the line, there will always be people just below the line who will be disgruntled ... which will reflect on the OBR".
Nothing is set out in the charter that can undermine the Bill. The guidance can relate only to functions conferred by the Bill; it cannot add to or distort them. Further, as we have noted, the charter must be approved by another place before it can come into effect. I have listened carefully to the debate, which has suggested to me that even those who say that we do not need the interpretation of the charter are actually using different definitions. I think that the charter is the right place in which to provide the OBR with the clarity that it quite rightly seeks. For that reason, and because the noble Lord admits that the amendment does not quite work technically, I ask him to withdraw it.
Lord Eatwell: I am grateful to the noble Lord. If we get Clause 5(3) right, it may work very well, but we have been chewing this matter over perhaps to excess. The Minister made one point about the issue of impartiality with respect to the Congressional Budget Office. While there is some relationship between the CBO and the OBR, the Congressional Budget Office is actually a creature of Congress. That is different from the OBR, which is a creature of the Executive. It means that we have a very different issue before us.
I am still disturbed by the definition of "objectively". As I pointed out, the notion of merit and demerit is rather difficult in and of itself, and therefore, in preparing for the final draft of the charter, I would like the Government to consider whether the word "merits" conveys exactly what they want it to.
Lord Sassoon: I am not sure whether this will help, but just to be clear, we are expecting the OBR to assess the impact of policies on forecasts. So there is no question of merits and demerits, other than that we are trying to exclude all questions of merit and demerit and keep to the factual impact of policies. I am struggling a bit with any suggestion that we are somehow dragging the OBR into considerations of merit or demerit. The noble Lord took the example of employment and unemployment. All we ask of the OBR is that it should tell us what the factual situation is and absolutely not to comment on its merits or demerits. There is no question of enormity of judgment by the OBR in this or any other respect.
The basic underlying language here is the same as that which applies to the National Audit Office in the National Audit Office Act 1983. That is all we are trying to replicate in this respect, even though this is scrutiny and not audit.
Lord Eatwell: The noble Lord sounds like the fellows in my college whose standard reaction to any proposal of mine is, "We've always done it that way". One peculiarity in the drafting of this Bill and of the charter is that everything is defined in terms of negatives. What we have in the charter is that the OBR should not analyse or comment on the particular merits of something. Why not say what you mean by using words such as, "The OBR should analyse or comment only on the impacts of Government policy", as the Minister has just said? Why is everything defined in terms of the negative? Why can we not say what we want to achieve in positive terms?
The other problem with this is that I give the Government enormous credit for incorporating Clause 5(2) in the Bill. They deserve tremendous credit for doing that. However, subsection (1) weakens it, not necessarily as presented now, but it provides an opening for future Governments to change this guidance. That is what we do not want. It is unfortunate that this qualifying subsection is incorporated in Clause 5(2), which is tremendously to the Government's credit.
The amendment seeks to delete the words "aim to" so that it reads, "The Office must carry out its functions efficiently and cost-effectively". There would be a loophole if the office could simply say that it was aiming to do this when it may not achieve that objective. More sensibly it should be mandated to operate efficiently and cost-effectively, otherwise it may overspend its budget by an enormous amount and say, "Do not worry, these are unforeseen circumstances. We aim to do it". I beg to move.
Lord Sassoon: My Lords, of course the OBR should be cost-effective and efficient-there is no question about that-and the amendment seeks to increase the requirement for it to be so. However, in reality the amendment would not change in substance the requirement on the OBR because, if it was ever challenged on this point, the challenge would be subject to what it would have been reasonable for the OBR to have done.
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At the risk of the noble Lord, Lord Eatwell, jumping up again, I have to say that this is the same as the requirement on the National Audit Office, as set out in Part 2. It is not necessarily a good defence; I merely observe-
Lord Sassoon: Of course, in the wider context, the accounting officer will have to answer for the OBR's cost-effectiveness and efficiency and it will be subject to the normal governance and scrutiny arrangements for public bodies. Those scrutiny arrangements will include an audit, I say advisedly, by the NAO, which will have the power to examine and report to Parliament on a number of matters, including the economy, efficiency and effectiveness of the OBR.
I thank my noble friend for trying to tease out what is going on here. It has enabled me to ask questions and to establish that the words as originally drafted essentially encapsulate the test that a court would use
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Lord Higgins: It will be a question of it coming not to court but to the NAO, which is dealt with in the second part of the Bill. It seems to me that the office would have been on much stronger ground if it was simply told that it must carry out these functions than if it merely said, "Oh well, if it's all right, I was aiming to but I've failed". None the less, to a degree I take the point made by my noble friend and I beg leave to withdraw the amendment.
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